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DATE
Thursday, May 22, 2025 at 9 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer — David Shaffer
President and Chief Operating Officer, Incoming Chief Executive Officer — Shawn O'Connell
Executive Vice President and Chief Financial Officer — Andrea Funk
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RISKS
Guidance Pause: Management explicitly stated they are "temporarily pausing quantified full-year guidance" for FY2026 due to uncertainty surrounding evolving tariff policies.
Tariff Exposure: Direct tariff exposure is approximately $92 million at current levels, and management expects "some near-term friction in Q1 due to stranded tariffs that can't be passed on to customers."
Motive Power Headwinds: Adjusted operating earnings for Motive Power are expected to be pressured in Q1 FY2026 by seasonality, tariff disruptions, and a 14% year-over-year decline in Americas Q4 orders.
Class 8 Truck Volatility: The Specialty segment was negatively affected by "slower Class 8 truck OEM volume recovery" and choppy order rates as OEMs revise forecasts amid tariff uncertainty, with recovery expected in early FY2026.
TAKEAWAYS
Net Sales: up 7%, with a 4% organic volume increase and 1% positive price mix, including a 4% positive impact from the Brentronics acquisition and a 2% FX headwind.
Adjusted Gross Margin: excluding 45x benefits, up 260 basis points despite FX headwinds.
Adjusted Operating Earnings: Excluding 45x, adjusted operating earnings increased 48%, with an adjusted margin of 11.1%—a 360 basis-point improvement.
Adjusted EPS: Adjusted EPS was $2.97, up 43%, surpassing the high end of guidance; Excluding 45x, adjusted diluted EPS was a record $1.86, $0.66 higher than the prior year and more than $0.40 above the previous record.
Effective Tax Rate: In the fourth quarter of fiscal 2025, the effective tax rate was 15.9% as-reported and 18.9% as-adjusted before 45x, compared to 20.2% in Q4 2024 and 23.3% in Q3.
Energy Systems Revenue: Adjusted operating earnings were $35 million, growing by $17 million, with margin up 400 basis points to 8.7%.
Motive Power Revenue: $392 million, flat versus prior year due to FX and flat volumes offset by positive price mix; adjusted operating earnings were $67 million, up 15%, with margin at 17.1% (up 240 basis points).
Specialty Revenue: driven by a 22% Brentronics contribution and 1% organic volume growth, partially offset by a 2% decrease in price mix; Adjusted operating earnings were $15 million with margin up 270 basis points to 8.5%.
Maintenance-Free Adoption: Maintenance-free products reached a record 29% of Motive Power segment sales, with 16% year-over-year growth in sales of these products.
Data Center Revenue: Energy Systems experienced a 22% year-over-year increase in data center revenue, contributing to earnings growth.
Free Cash Flow: with positive operating cash flow of $135 million
Capital Position: $343 million cash on hand, and a leverage ratio of 1.3 times EBITDA as of March 31, 2025, with $200 million remaining on share repurchase authorization.
Operational Restructuring: Closure of the Monterrey, Mexico plant and transition to Richmond, Kentucky, is expected to yield $19 million in annual pretax benefit beginning in FY2027.
Q1 2026 Guidance: Net sales expected at $830 million-$870 million; adjusted diluted EPS forecast of $2.03-$2.13, including $35 million-$40 million 45x benefit; management explicitly notes Q1 FY2026 is likely “the low point” for the fiscal year.
SUMMARY
EnerSys (ENS -13.94%) delivered its second-highest quarterly revenue on record and achieved record adjusted EPS of $1.86, excluding 45x benefits, driven by margin expansion and favorable product mix across multiple segments. Management detailed a structural shift toward higher-maintenance-free product adoption and strategic cost optimization, supported by resilient end-market demand in data centers, aerospace and defense, and recovering communications. Guidance anticipates sales and earnings pressure from tariff-related disruptions and seasonal softening, and the company suspended full-year guidance for FY2026 due to macro uncertainty regarding tariffs. Leadership transition was confirmed, with Shawn O'Connell set to assume the CEO role while reiterating a focus on targeted growth verticals, service expansion, and operational efficiency. The balance sheet and liquidity position allow continued investment and potential for further M&A, while tariff exposure and unsettled policy remain key short-term determinants of performance.
Andrea Funk stated: we have not yet received a $107 million US tax refund, which we had expected in Q4 FY2025. We attribute this delay to IRS staffing issues and anticipate receiving the refund with interest any day.
Shawn O'Connell highlighted proactive tariff mitigation, referencing structural buffers and ongoing OpEx discipline to offset anticipated friction from stranded tariffs.
"No bolt-ons at all in our number at all." Andrea Funk clarified, confirming Profitability levels for Q1 FY2026 and FY2026 exclude further acquisitions.
Significant structural change in Energy Systems includes consistent sequential order rate improvement in both the Americas and EMEA, with order growth outpacing prior regional lows.
Specialty growth derives from the Brentronics acquisition and robust Aerospace & Defense demand, partially offset by slower transportation OEM recovery.
EnerSys expects $19 million in annual pretax benefits starting in FY2027 from restructuring initiatives, complemented by targeted investments in domestic lithium manufacturing pending DOE funding clarity.
Management remains prepared for a "range of outcomes" in macro and policy environments, pausing full-year FY2026 guidance until tariff negotiations are resolved.
INDUSTRY GLOSSARY
45x (IRC45x): A reference to Section 45X of the U.S. Internal Revenue Code, which provides advanced manufacturing production tax credits, particularly relevant for battery manufacturers.
TPPL: Thin Plate Pure Lead battery technology, used in maintenance-free batteries offering advantages in performance and labor reduction.
AOE: Adjusted Operating Earnings, a non-GAAP measure of profit before certain adjustments, referenced throughout the earnings discussion.
BESS: Battery Energy Storage System; modular, scalable systems for warehouse and distribution center customers, referenced as a new product initiative.
A&D: Aerospace & Defense segment, encompassing military, governmental, and defense-related applications and contracts.
OEM: Original Equipment Manufacturer, relevant to both transportation and Specialty end markets, denoting companies supplying equipment incorporated into finished goods.
USMCA: United States-Mexico-Canada Agreement, referenced as a trade compliance standard for sourcing and tariff mitigation.
Full Conference Call Transcript
Lisa Hartman: Good morning, everyone. Thank you for joining us today to discuss EnerSys' fourth quarter and full year fiscal 2025 results. On the call with me today are David Shaffer, EnerSys' Chief Executive Officer, Shawn O'Connell, EnerSys' President and Chief Operating Officer and Incoming CEO, and Andrea Funk, EnerSys' Executive Vice President and Chief Financial Officer. Last evening, we published our fourth quarter and fiscal year 2025 results under our 10-Ks 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 these forward-looking statements for a number of reasons. These statements are made only as of today. For a list of forward-looking statements and factors which could affect our future results, please refer to our recent Form 8-Ks and 10-Ks filed with the SEC. In addition, we will be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance and 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-Ks, which includes our press release dated May 21, 2025. Now I'll turn the call over to EnerSys CEO, David Shaffer.
David Shaffer: Thank you, Lisa, and good morning. Please turn to Slide four for a review of our fourth quarter and full year performance. EnerSys delivered a very strong fourth quarter demonstrating the earnings power of our balanced business. We grew revenue 7%, our second highest revenue quarter ever, and delivered record adjusted diluted EPS of $1.86, excluding 45x benefits. Highlights included record motive power margins, significant margin expansion in Energy Systems and Specialty, and strong contributions from the Brentronics acquisition. In Energy Systems, we saw growth in data centers and continued moderate recovery in communications. Motive Power generated 15% earnings growth on similar volumes to prior year fourth quarter, with increased maintenance-free products reaching a record 29% of segment sales.
Specialty benefited from sustained strengths in A and D markets and outperformance from Brentronics. Full year revenue was $3.6 billion with meaningful gains in adjusted gross margin, adjusted operating earnings even before 45x benefits. We made meaningful progress in fiscal year 2025. We executed our strategy in a challenging environment. We expanded our share in the attractive and growing defense market, grew our higher margin maintenance-free offerings, reduced cost, optimized our manufacturing footprint, invested in high-speed lower-cost flexible domestic production capacity, and developed new product offerings strengthening our foundation for future growth. As announced in November, today marks my final day as CEO. Shawn O'Connell takes the helm as CEO tomorrow.
With deep industry experience and proven leadership across EnerSys, I am confident he will lead the company to continued success. It has been an honor to serve as EnerSys' CEO. I would like to thank our employees for their consistent hard work and dedication in supporting each other and our customers every day, our board of directors for their support, and our shareholders for your trust. I will now turn it over to Shawn to take you through more detail on our results and business drivers. Shawn?
Shawn O'Connell: Thank you, David, for your leadership and for positioning EnerSys for future success. I know I speak for the entire EnerSys family in wishing you the very best in your next chapter. Please turn to Slide six. As I begin my remarks today, I would like to start with my perspective on our business. EnerSys enjoys deep customer relationships and leading market share positions in diverse end markets. The key to our future growth is that our solutions help our valued customers address their shared mounting concerns in two main areas: energy security and labor scarcity.
Our products help our customers manage their energy costs and consumption while also making it possible for them to perform the same missions with fewer people through maintenance-free products and automation, enabled by intelligent stored energy solutions. Over the past six months, I have taken my strategic hypothesis, tested them with external advisors, and are finalizing a focused roadmap to go deeper in helping our customers address these challenges while resetting our operation and reinforcing intense discipline on ROIC. There are opportunities for us to narrow our focus on select growth verticals, expand our service capabilities, and achieve further operational efficiencies, which I will share more with you on our August call and upcoming quarters.
In the near term, our focus is on disciplined execution as we move through a transitional period shaped by evolving macro and policy dynamics. Before I get into the quarter, I'd like to take a step back to address the broader macroeconomic environment, our tariff exposure, and our approach to mitigating associated risks. Please turn to Slide seven. In March, we established a dedicated cross-functional task force dedicated solely to analyzing, coordinating, and mitigating tariff impacts, considering both supply chain and pricing actions.
This team is also monitoring both the tertiary impact of tariffs on inflationary pressures as well as, and perhaps most importantly, market dynamics, both positive and negative, from suppressed demand to opportunities where our global footprint offers competitive advantages. Thanks to our longstanding practices of producing in-region for-region, onshoring from China, dual sourcing, and footprint rationalization, we already have structural buffers in place. We are committed to fully mitigating any financial impact to our shareholders and see OpEx reductions as an effective lever for what cannot be offset by supply or pricing actions.
To put our tariff exposure in perspective, about two-thirds of our global revenue comes from the U.S., in which 80% of our U.S. supply is either domestic or USMCA trade compliant. Only 5% of this is sourced from China, where the highest tariff rates still exist. At current tariff levels, our direct tariff exposure is approximately $92 million, down from $160 million prior to the May 12 U.S. administration update. We intend to fully offset this impact but expect some near-term friction in Q1 due to stranded tariffs that can't be passed on to customers. The biggest unknown to us is timing and the scope of broader inflation and/or slowdown effects across the industrial sector.
That said, we are prepared for a range of outcomes guided by our proven and refined playbook. We will remain well-positioned to weather both tariffs and a potential downturn if one materializes. Please turn to Slide eight. In addition to our resilient balance sheet and conservative capital structure, EnerSys has a number of structural advantages to help us mitigate economic downturns. First, a large portion, about 60% of our business, follows GDP-independent cycles, with limited sensitivities to general economic conditions, as they follow their own investment timelines. This includes A and D and data centers, which are currently enjoying robust market momentum, as well as network communications, which is poised.
Second, our global manufacturing footprint provides flexibility in our production and distribution capabilities and leverage varying geopolitical dynamics by market better than many of our competitors. Third, our primary operating capital investments have historically been a cash generator during recessionary periods. And finally, we maintained consistent OpEx discipline enabling us to respond quickly when needed. While shifting conditions may temporarily affect market rhythm, we remain well-positioned to expediently protect both earnings and cash flow. I'd now like to turn your attention to current business performance. Our overall book-to-bill in the fourth quarter was just over one, with Energy Systems and Specialty above one, offset by Motive Power below one.
Energy Systems had positive order rates for the third consecutive quarter, driven both by data centers and communications. In Specialty, A and D projects and orders have been robust. It's worth noting that we did see some order moderation early in the first quarter as customers adjusted to tariff-related developments. But activity rebounded quickly when tariff actions were paused. To provide more visibility in what we are seeing today versus prior year, our first quarter year-to-date order rates for Motive Power are up 16%. Energy systems are up 10%, and specialty are up 33%, with the Brentronics ad.
While we anticipate demand signals to be variable in the coming months, we view this as a temporary recalibration phase and not a structural change in market trajectory. Now I'll provide some more detail on the business drivers behind our strong fiscal Q4 performance. In our Energy Systems business, I am pleased with the team's execution, nearly doubling adjusted operating earnings. These improved results highlight the benefits of structural improvement actions along with a 22% year-on-year increase in quarterly data center revenue and continued signs of recovery in U.S. communications spending. While we are encouraged by early project work and network expansion planning in U.S. communications, particularly driven by AI-related data demand, many customers are selectively managing capital expenditures.
As such, we expect the pace of network expansion to remain gradual and order rates were sequentially higher with particular strength in the Americas. Continued sequential order rate growth in EMEA is encouraging, as a sign that the regional spend is increasing and off prior lows. It's important to note that while we are seeing strong order rates, lead times can extend the revenue conversion timeline in this business. Further, although this segment is one most exposed to tariffs and supply chain disruptions, we have significantly improved our monitoring and ability to respond more quickly than in the past.
Finally, as an additional future tailwind, our services revenues continue to be challenging for us as an increasing area of focus for Keith. We see this as a tremendous opportunity to add value to our customers and grow profitably in the future. In Motive Power, our very strong AOE performance was driven by another quarter of favorable price mix, on increasing TPPL with charger mix despite relatively flat sales year over year on lower volumes in EMEA and APAC.
In Q4, sales of maintenance-free products were up 16% year over year, representing a record 29% of total Motive Power revenue with customer enthusiasm over how our products help them address their labor challenges as I had mentioned at the beginning in my remarks. Industry estimates for lift trucks indicate calendar year 2025 may be down slightly over prior year with continued expectations for a better recovery in calendar year 2026. We are receiving mixed signals on the near-term outlook for Motive Power. Our April, May order book has been stable to promising, and April ITA truck orders were up over 19% over last year's historical lows.
Conversely, we have a lower starting backlog than both a year ago and last quarter, slower book and ship activity in the current quarter, and anticipate disruption will continue to be impacted in the near term with major ports reporting dramatic fluctuations of container volumes over the past three months as importers drastically adjust shipments week by week in response to ongoing tariff updates. As a reminder, this business is largely correlated with GDP, but also has unique upside opportunities driven by macro trends of electrification and automation as well as increasing market demand for our high-performing higher-value maintenance-free products. We believe in anticipation of announced tariffs, which will reverse out in the first quarter creating a temporary drag.
That said, we also see potential upside opportunities as lithium pricing pressure from Chinese suppliers may drive increased customer interest in TPPL going forward. But it's difficult to predict how and when these market dynamics will play out. In Specialty, we delivered significant earnings. Driven by solid performance in aerospace and defense, supported by the continuing outperformance of our Brentronics acquisition. Growth in Brentronics was fueled by robust demand for chargers, soldier power, and expeditionary power systems, as well as increased demand from the European defense market. The impressive A and D results were partially offset by slower class eight truck OEM volume recovery that we had initially anticipated.
Tariff and macro uncertainty have caused the Class eight truck recovery we are expecting for early fiscal 2026 and we are seeing slower and choppy order rates as major OEMs continue to revise forecasts. A and D markets remain robust and will be strengthened by the macro although we have seen some near-term delays that we believe to be timing-related with personnel reductions in the administration temporarily clogging the flow of orders. With strong momentum in Brentronics and broader A and D, amid opportunities for improvement in transportation when markets come back, our specialty business remains well-positioned for continued growth and profit expansion. Our recent performance reflects a business not only built for resilience but ready to adapt.
As we transition leadership, we are sharpening our focus, executing with discipline, building operational momentum, and listening closely to customers as their challenges evolve. We've made meaningful strides bringing new technologies to market, introducing cutting-edge products, such as software-driven energy management systems, which will help our These advancements equip our customers with adaptable and efficient solutions that evolve alongside their needs. The preview of our Cenova Sync charger and battery energy storage system or BETS for warehouse and distribution center customers generated a lot of excitement at recent trade shows. Sunnova Sync, our new generation battery charger, delivers high efficiency, IoT compatibility for remote monitoring, and over-the-air firmware updates advancing our IoT ecosystem.
While in the development phase, our bets resonated with our customers looking for a solution to tackle power continuity challenges, costly infrastructure upgrades, long lead times, and limited flexibility. Barriers that often slow electrification efforts. Engineered for rapid deployment and semi-portability, customers were enthused by the enhanced flexibility and efficiency of our best and what they will offer their operations. Operationally, we're building on progress from fiscal 2025 with a heightened focus on execution. The first new high-speed line in our Missouri Springfield one factory began production this quarter is performing to expectations. With the second high-speed line on track to become operational in the fall. At the same time, we are actively reshaping our manufacturing footprint.
As previously announced, we are closing our flooded lead acid battery manufacturing facility in Monterrey, Mexico, and transitioning production to our existing plant in Richmond, Kentucky. This move will enable us to optimize our cost structure. The transition will also allow us to maximize near-term IRC45x tax benefits aligns with our philosophy of producing in market. The restructuring is expected to deliver an estimated pretax benefit of $19 million annually beginning fiscal year 2027 while ensuring continued product availability and customer support. To further strengthen our focus on high-impact technology execution, as previously announced in March, Mark Matthews, President of our Specialty Global line of business has been appointed acting Chief Technology Officer.
Mark brings more than three decades of engineering and operational leadership, including deep technical expertise in lithium-ion chemistry. He currently leads our aerospace and defense business, which utilizes multiple distinct lithium chemistries across mission-critical applications. This experience combined with his deep relationships across the Department of Defense and Department of Energy positions him well to guide the next phase of our lithium strategy and align it with national priorities. Mark is actively reviewing our lithium technology roadmap and investment plans to ensure they reflect evolving market demands and long-term supply needs. His dual role ensures commercial alignment with R and D and capacity planning as we position EnerSys for future growth in domestic lithium battery manufacturing.
While the funding of the DOE award for are encouraged by recent engagement with the DOE and remain optimistic given the project's alignment with defense readiness, domestic supply assurance, and American manufacturing. In the meantime, we are taking a disciplined risk-aware approach. Adjusting our plans, maintaining flexibility, and closely managing cost dynamics as we update our financial model for evolving cost and benefit assumptions to ensure our future path delivers an attractive return on investment for our shareholders. We remain well-positioned to move with speed and confidence once greater policy clarity emerges. In closing, I want to express my deep confidence in the strength of our business, the relevance of our solutions, and the dedication of the EnerSys team.
We are energized by the critical role we play in supporting the industries that keep data and products across the world moving. I look forward to sharing more about our evolving strategy and growth roadmap during our fiscal Q1 earnings call in August. Now, I'll turn it over to Andy to discuss our financial results and outlook in greater detail. Andy?
Andrea Funk: Thank you, Shawn. Please turn to slide twelve. Fourth quarter net sales of $975 million were up 7% from the prior year. The second highest revenue quarter for the company. Driven by a 4% increase in organic volume, largely on Energy Systems Communications continuing recovery and strength in data centers. As well as 1% positive price mix across motive power and energy systems, and a 4% positive impact from the Braintronics acquisition, partially offset by 2% FX headwind. We achieved adjusted gross profit of $304 million, up $49 million year on year and up $41 million if you exclude 45x benefits.
Q4 2025 adjusted gross margin of 31.2% was up 320 basis points versus prior year and excluding 45x, adjusted gross margin was up 260 basis points despite the FX headwinds. Our adjusted operating earnings were $152 million in the quarter, up $43 million versus prior year, with an adjusted operating margin of 15.6%. Excluding 45x benefits, adjusted operating earnings increased $5 million or 48% with an adjusted operating margin of 11.1% on 7% revenue growth driving a 360 basis point margin improvement year on year. Adjusted EBITDA was $167 million, an increase of $42 million versus prior year while adjusted EBITDA margin was 17.1%, up 340 basis points, nurses' prior year.
Adjusted EPS for the fourth quarter came in above the high end of our guidance range at $2.97 per share, an increase of 43% over the prior year. Excluding 45x, adjusted EPS was a record $1.86 per share, up $0.66 per share versus prior year, demonstrating the strong earnings power of a diversified business and more than $0.40 per share higher than our previous record. In the fourth quarter of fiscal 2025, our effective tax rate was 15.9% on an as-reported basis and 18.9% on an as-adjusted basis, before the benefit of 45x. Compared to 20.2% in Q4 of 2024 and 23.3% in the prior quarter. Full year net sales of $3.6 billion were up 1% year over year.
We generated adjusted operating profit of $528 million including $185 million benefit from IRC45x tax credits. Excluding the 45x benefits, we generated record adjusted profit of $343 million. Adjusted diluted EPS was $10.15 per share, an increase of 22% and adjusted diluted EPS before 45x benefits was a record $5.58 per share, an increase of $0.53 from our prior record. Let me now provide some details by segment. Please turn to slide thirteen. In the fourth quarter, energy systems revenue increased 8% from prior year to $399 million primarily driven by increased volumes as well as price mix, and partially offset by FX.
Revenue was up over $10 million sequentially the third consecutive increase as we continue to see steady improvement in these end markets. Adjusted operating earnings of $35 million grew for the fifth consecutive quarter reflecting higher operating leverage through our optimized cost structure and were $17 million higher than prior year. Adjusted operating margin of 8.7% increased an impressive 400 basis points versus prior year. We exited the quarter with encouraging order trends in this business and expect to deliver year over year margin expansion as revenue grows and we continue with our structural improvement efforts.
While we remain fully confident in our ability to proactively mitigate tariff and supply chain disruption when the macro environment stabilizes, we expect to absorb some short-term headwinds from stranded tariffs in the upcoming quarter. As Shawn mentioned, although this segment is our most sensitive to tariff supply chain volatility, we have enhanced our visibility and responsiveness. Allowing us to act with greater speed and precision than in prior cycles. Please turn to Slide fourteen. Motus Power revenue was in line with the prior year at $392 million as FX headwinds and flat volumes were offset by positive price mix.
Motiv Power again reported robust adjusted operating earnings this quarter, contributing $67 million up 15% versus prior year on the flat revenue largely on favorable price mix as well as some lower commodity and manufacturing costs. Maintenance-free conversion continued its impressive trend at a record 29% of Motiv Power revenue in Q4. Adjusted operating margins were 17.1% up 240 basis points versus the prior year. Since the implementation of tariffs, a leading industry report indicates a significant decline in market sentiment. Reflecting a more than 50% drop in confidence for both current and future business. As the broader market is digesting this evolving market dynamic.
While our products play a critical role in global supply chains, we expect a temporary short-term negative impact on new lift truck orders as companies reassess their investment strategies in response to the evolving trade landscape. We see meaningful upside to this business once conditions settle supported by long-term tailwinds from electrification and automation, along with growing customer preference for our higher-performing maintenance-free solutions. Please turn to Slide fifteen. Specialty revenue increased 21% from prior year to $178 million driven by a 22% positive impact from the Brentronics acquisition and a 1% increase in organic volumes, partially offset by a 2% decrease in price mix.
Q4 2025 adjusted operating earnings of $15 million were nearly double prior year with an adjusted operating margin of 8.5%, up 270 basis points. Specialty's performance reflects focused execution with A and D and Brentronics driving the current results. With additional leverage expected from our Missouri investments, and longer-term transportation improvement, we anticipate further gains ahead. Please turn to Slide sixteen. Positive operating cash flow of $135 million offset by CapEx of $30 million resulted in free cash flow of $105 million in the quarter. I would like to note that we have not yet received a $107 million US tax refund, which we had expected in the fourth quarter.
We fully attribute this delay to IRS staffing issues and anticipate receiving the refund with interest any day. We had strong primary operating capital management ending the year with $932 million on hand. Up $79 million versus prior year as we built the business for future growth. As of March 31, 2025, we had $343 million of cash and cash equivalents on hand. Net debt of $781 million represents an increase of approximately $270 million since the end of fiscal 2024, as we made our acquisition of Brentronics, returned $192 million to shareholders, through share repurchases and dividends, and continue to invest in our business. Our credit agreement leverage ratio was 1.3 times EBITDA.
Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. We anticipate maintaining our net leverage at or below the low end of our two to three times target range providing us with ample dry powder for our capital allocation decision to absorb any macroeconomic dynamics that may impact us. Please turn to Slide seventeen. During the fourth quarter, we paid $9.5 million in dividends and repurchased $40 million in shares. We currently have approximately $200 million remaining on our board buyback authorization.
We continue to evaluate promising bolt-on acquisition opportunities like Brintronics, that align with our disciplined strategic and financial criteria and are focused on strengthening customer intimacy, expanding share of wallet with the leading positions in exciting end markets, and making progress on our transformation journey. Given the strong cash flow generation of our business, we have the opportunity to be more aggressive and are opportunistic share buyback activity particularly during these volatile market conditions. Please turn to Slide eighteen. As Shawn mentioned, we remain very confident in our ability to effectively manage our business in the evolving macro environment and deliver strong earnings performance.
We are committed to fully shielding our investors from the ongoing impact of tariffs although we may have some short-term headwinds when uncertainty creates pocket of volume disruption and stranded costs. Our fiscal first quarter 2026 guidance reflects typical seasonal volume softness in Mode of Power and Transportation, exacerbated by the short-term macro dynamics. For the first quarter of fiscal 2026, we expect net sales in the range of $830 million to $870 million with adjusted diluted EPS of $2.03 to $2.13 per share. Which includes $35 million to $40 million of 45x benefits to gross profit.
The largest driver of our anticipated Q1 sequential decline in revenue and EPS can be attributed to Motiv Power volumes, which are expected to be pressured on seasonality and tariff disruptions with Motiv Power America's Q4 orders down 14% year on year as well as to a lesser extent, approximately $5 million of stranded tariff costs. Shawn and I are working on scenario plans to effectively respond to any and all outcomes as it relates to further tariff policy dynamics. Given the evolving policy environment and pacing of demand normalization, we are temporarily pausing quantified full-year guidance. That said, we believe Q1 will be the low point of our fiscal year.
We anticipate full-year adjusted operating earnings growth excluding 45x benefits, to outpace revenue growth for the fiscal year. With improvement in our order book during Q1 year to date, we expect revenue will be bolstered by our customers' enthusiasm for our maintenance-free robust A and D and datacenter markets, and ongoing improvements in our communication and transportation businesses as well as ongoing improvements in our manufacturing costs, disciplined OpEx, and reductions in our capital expenditures year on year, all of which will be tempered by macro dynamics. To proactively mitigate these market dynamics, we've implemented direct and indirect cost controls and also are currently reviewing additional reductions in both OpEx and CapEx as part of Shawn's strategic business improvement roadmap.
Please turn to Slide nineteen. Before we move to Q&A, to provide an update on our progress towards the fiscal year 2027 financial targets we set at Investor Day in June of 2023. In aggregate, we are on track towards our earnings target with strong performance and adjusted operating margin EBITDA and EPS and future upside potential from the reinvestment of our excess cash flow. As with any multiyear plan, there are puts and takes. We are very pleased with our maintenance-free conversions, realizing a richer mix of product sales across the business, our TPPL capacity investments, Energy Systems business optimization actions, the expanded 45x benefit, and the accretive impact of our Brentronics acquisition.
On the flip side, our sales cakers have been below where we still believe our longer-term potential resides, largely on unforeseen market-wide disruptions. These outcomes have informed Shawn's strategy which we will be updating you on in August. As Shawn steps into the CEO role, she is advancing our strategic work, aimed at deepening customer intimacy, accelerating our most high-impact new product initiatives that help our customers address their energy and labor challenges, and enhancing our operational efficiencies, execution, and return on invested capital. These efforts combined with our strong foundation position us to pursue the growth and margin expansion we know our business is capable of. We look forward to sharing further updates as the fiscal year progresses.
In closing, global demand for our energy storage solutions continues to build as our products and services remain essential to the industries that drive the global economy. From resilient grids and communications networks to secure data centers and national security as well as global material distribution and warehousing. Coming off of record-shattering Q4, we are confident in the earnings power of our business and are optimistic about our ability to continue to expand margins, grow revenue, and create long-term value for our shareholders. With this, open it up for questions. Operator?
Operator: At this time, please press star one on your telephone. If your question has been answered, you wish to move yourself from the queue. Our first question comes from Noah Kaye with Oppenheimer. Your line is open.
Noah Kaye: Hi, good morning. Thanks for taking the questions.
Shawn O'Connell: Hi, Noah.
Noah Kaye: So I guess, I just wanted to start first with under, you know, the revenue range. I think you gave some, you know, color on, you know, where we would see weakness in motive maybe a little bit of growth in energy systems and specialty, you can talk through that. But, you know, the EPS guide about $0.20 higher year over year on kind of flat revenues at the midpoint. Can you help sort of bridge to that EPS growth with your expectations around operating margins and tax rate?
Shawn O'Connell: Yeah. Good morning, Noah. It's Shawn. Good to hear your voice, and thank you for the question. I'll provide a little color here on what we're seeing for Q1 and then I'll let Andy handle the EPS portion of it. But just to give you a little idea of, well, you know, what went on and anticipation of liberation day, our motive for customers largely took a wait-and-see approach. Which affected had some near-term effect on orders. But then, you know, we probably saw a little bit of pull into to get ahead of that. And then we saw, you know, some pickup with improving news from the administration.
And now overall, as we mentioned in the remarks, year-to-date orders are relatively flat with the, you know, current order rates broadly in line with normal cycles. So where we would expect to see in comparison to the last several cycles, So it's while we have this noise, it feels like we are trending back to normal. What we don't know is, you know, the effect of reciprocal tariffs, You know, we have some of these are still pauses and not settled science. But it feels like a strengthening for us. And, you know, so we anticipate that this book that we saw was totally tariff shock related and that the markets are largely getting back to business.
And then as you mentioned, Energy Systems, just continue to see activity coming in for network build-out. The carriers realize they have a deficit when it comes to passing AI traffic through their networks. And they're beginning to get active about solving those technical issues. So we feel very good about continued trajectory in ES and a rising comfort level of motive, if you will. And then we didn't see, you know, the you didn't ask about transportation, but we're kinda following the same trajectory there where we were on pace for a nice recovery. And then just like in the forklifts, the transportation customers sort of hit pause to sort through this tariff noise.
With that, I'll turn it over to Andy.
Andrea Funk: Yeah. Thanks, Shawn. So I think you covered the markets well. Noah, what might help is if we level set to last year. So largely within Q1 2026, it's really gonna look a lot like Q1 of 2025. Revenue's in line. If you look at our guide, but we're seeing lower volume, mostly in motive power and some in transportation, as Shawn mentioned, offset by the accretive benefit that we're having from Brentronics and the really strong favorable price mix we've been able to achieve. If I'm looking at EPS, EPS, our guide is up about midpoint, up about $0.10 year on year. But first, normalize it.
So pull out maybe $0.25 to $0.30 per share that we should have had of an uplift from Brentronics and the 45x expanded EAM impact. But then add back, we probably are seeing about $0.15 per share from pressure from FX, and that gets you to really a flat EPS year on year. So why flat? We've lower volume, as Shawn mentioned, and that's really related mostly to motive power driving that. And then a little bit of stranded tariff costs and those items offset this really robust favorable price mix gain. That we've been able to achieve over the course of fiscal year 2025. So we are seeing our Q4 orders down on the tariff.
We'd expect, without a doubt, that Q1 is gonna be the low point and we should see recovery going on from there absent additional tariff shocks.
Noah Kaye: Okay. Thanks, Andy. Yeah. Sorry. I've been to $0.10 higher year over year, but thank you for bridging that. I guess just maybe explain the decision process around kind of pausing guidance because I wanna make sure we get that number again because there's a lot of numbers that you guys give out. But the one Q to date order book is year over year up how much and then just help us understand why pause full-year guidance if kind of to your point we seem to be kind of experiencing some recovery in orders off of the early April uncertainty.
Andrea Funk: Yeah. So if we look at our Q4 orders, and I think what we were referring to was within Motiv Power Americas. We had that 14% pressure. If you look at orders overall, you know, different the energy systems was up year on year. Obviously, we're during the recovery. Trans, you know, basically flat to A and D. It's choppy. But what we really saw is this big pause and then kind of a resurgence. If we look at full year to date within Mode of Power, calendar year, our calendar year is flat year on year.
So we saw a big decline during Q4, which we're gonna feel the effects of that coming out into Q1 and then a resurgence in Q1 so far of what we're seeing as far as orders go.
David Shaffer: Noah, this is David. Just for a little bit more clarification, if you look at Motive Power orders calendar year to date, they're very consistent with last year. So it's there was the cycles the normal cycles been very disrupted. As Shawn said, people took a wait-and-see attitude. And the main reason we're just not in a position to provide annual guidance right now is just awaiting the final outcome of the reciprocal tariff negotiations and how that's all gonna shake out. That could have positive and negative impacts. For us. And we wanna make sure we have that clarification and clarity before we go and provide a full annual guidance. As the situation rests today, it's all very manageable.
We just wanna make sure that especially with Shawn coming on board, that we provide the best information we have going forward, and that's gonna include fully understanding how these when these holds on the temporary and the reciprocal tariffs kinda wind down. So that's what we're waiting to see.
Noah Kaye: Thanks, David. That's helpful. I just I need to maybe get some clarification. Apologies for not understanding. Around what you were actually saying around order recovery in this quarter today, the current quarter. I thought you gave some color on that and some numbers overall. So can we just have it one more time? Like, what rebound you've seen since April?
Andrea Funk: Again, what we talked about was some we don't provide necessarily the full order book Q1. Obviously, it's evolving as we speak right now. But what we were giving you, Noah, was when we talked about the decline in Q4, we saw it bounce back in Q1. So year to date, it's flat. So I think we gave a couple stats on, you know, what we're seeing throughout the course of the year. But, you know, what we're looking at is just the bounce backs that we're seeing in Q1 if that helps.
Noah Kaye: Got it. Very helpful. Thank you. I'll turn it over.
Operator: One moment for our next question. Our next question comes from Brian Drab with William Blair. Your line is open.
Brian Drab: Good morning, Brian. Good morning.
David Shaffer: Good morning.
Brian Drab: Thanks for taking my questions. I'm always hesitant to use people's time to say, you know, things like thanks, David, for everything. And it's been great working with you, and good luck in the next chapter. And I'll leave it at that. But so I first just wanted to ask, you know, Andy. I mean, now you gave out a new number here that, you know, in the Q&A, the calendar year to date order. For Motiv. Could I ask you if you could give, you know, that same year to date order growth or decline for energy storage and for specialty excluding Brentronics for specialty?
Andrea Funk: Yeah. You know, the only thing, Brian, we this quarter was unfolding, obviously, we're halfway through. There's a lot of actions that are going. What we and we saw them rebound in Q1. And that's what's driving kind of that pressure that we're seeing in Q1. I think that's similar to the question that Noah was asking. If I look at my Q4 orders in general though, just so you know, versus prior year, I'm seeing a significant pickup in energy systems. That's coming off the last year's pressure that you know, last year was when they it had the main message that we were trying to convey is Q4 orders were pressured started that U-shaped recovery.
So that recovery is continuing. Although we do see some pull-ins from Energy Systems into Q4. So our Q1 volumes in Energy Systems might be more or less flat but additional ongoing opportunity from there. Transportation, year on year, the orders have been mostly flat to a little up off of last year, but you know, again, what we've talked about is on the Q3 call, you probably remember, we had, like, we've seen a 40% increase in sequential transportation orders. Then, as Shawn mentioned, we saw a big decline. The main story we're trying to get here is it's week by week. It's a little bit all over the place.
The market is responding, especially things like eight OEM trucks and forklifts as their capital purchases. Our products are essential to moving products and information, globally. So a lot of it's kind of, one, we could pause is next week, it's up. One week, it's not sustainable. Things have to level out. And we know that our products solve critical provide a critical benefit in that the global economy. But we're seeing just a lot of volatility as everyone's trying to digest what's happening in the landscape. As a result of these tariff calls.
Brian Drab: Okay. Okay. Thanks. So and I'll follow-up more later on that. But can you talk a little bit more about the section 45x? And I guess specifically, have I'm wondering, have you seen anyone else in the checks. Have you seen anyone else in the industry get that check cut to them? And are you in an active dialogue with the IRS? Regarding you know, getting the cash.
Andrea Funk: Yeah. Brian, happy to take that one. We yes. Other companies or other lead acid battery companies have received their check with us being at 3/31 year-end, we're at a slight delay. There's been a lot of administrative changes in the IRS and we have individuals just with our regular ongoing tax filings, we have contacts at the IRS who've said, there's no hold up put in particular on your refund. We're just short-staffed. We've received no indication from both, political connections we have as well as from agents at the IRS themselves.
That there is anything other than just staffing delays and we will we expect I mean, any day I thought maybe we'd even get it yesterday and have an update to this Q&A. We expect to get it any day. And interest accrues as well. So we'll get an additional benefit from them also.
Shawn O'Connell: Yeah. Brian, it's Shawn. I don't know if you're watching the up-to-date news on all the happenings on the hill. But as we have been socializing, there's just broad bipartisan support of 45x and the package that was passed, you know, and that has to go to the senate, and it's still open to, you know, the final tweaks, but the package that was passed was largely in line with what we thought it would be. And nearly all of the tenants of 45x that were important to us are intact. If not all. There's a little bit of an increased sunset past 2031, and removed some wind stuff that didn't apply to us.
Anyway, But broadly, 45x appears to be moving the direction we thought would be. And we'll continue.
Brian Drab: Yes. I think everyone that's following EnerSys is following that. Closely. So that yeah. Thanks for that update. And I guess the last thing I if I could sneak in one more is just, in I'm sorry if I missed this, but are you making any comments today regarding your latest thinking on the lithium plant?
Shawn O'Connell: Sure. I'll take that one, Brian. So we continue to have direct conversations with the administration. And we haven't seen, you know, in our talks with the DOE, any wavering at all of their support of the lithium plant. And to remind you, the impetus for the funding was rooted in our largely our defense programs. And just for a bit of color, there's over 40 programs today for the Department of Defense that are sourced in Asia, and many of them from China for our national defense. And they're trying to consolidate those programs and bring them back home. So, again, the support has been very strong.
And then we have Mark Matthews who we mentioned on the call who's been involved in the program since day one, who maintains these direct relationships. And we have Mark going through. And just making sure that along with our finance team, we keep our model updated. We make sure we understand all of the, you know, the changing cost inputs, if any, And then now with the 45x news, know, we'll add that into our thinking. I will tell you also that we have never slowed down our cell development program.
So that while we've been waiting to see what's happening with funding, we've been working with our development partner to advance our a samples and be ready to go when we get the right news. So we, again, at this time, we feel very positive about that. But as we update the model and what that looks like, we'll keep you updated.
Brian Drab: Okay. Perfect. Very much.
Andrea Funk: Thanks, Brian.
Operator: Moment for our next question. Our next question comes from Greg Lewis with BTIG. Your line is open.
Greg Lewis: Yeah. Thank you and good morning everybody and thanks for taking my questions and David and I know I think the last quarter but thanks again for all the help over the last few years and good luck. Andy and Shawn, I guess this, you know, question is for you guys as we think about going forward probably a couple questions inside this question. But, you know, as we as we look at the leverage target, you know, you alluded to the tax refund you're gonna get that pushes it down even lower. So clearly, we're in a good position. To you know, to kind of you mentioned the buyback or organic growth.
As we look around the landscape, you know, over the next few quarters, You know, how are you thinking about the potential for, you know, inorganic growth? And just as a point of clarification, in the prepared comments where we talked about, you know, sequential or year over year, you know, EPS growth. You know, just to clarify, there's no expectation of bolt-ons in that number. Correct?
Andrea Funk: No. No bolt-ons at all in our number at all.
Greg Lewis: Okay. And then to my I said you I know sounds like you have a bunch of other questions in there, Greg. So just wanna make sure that we can be succinct in getting to those.
Greg Lewis: Great. And so and so as, like, as we as we look at today, what is what is the opportunities on the M&A front? You know, just given your balance sheet, you know, and as you we look at previous cycles, you know, the is uncertainty that we're in right now is that kind of gonna keep people on the sidelines in terms of your ability to acquire additional companies or is it kinda from your side, is it still business as usual?
Shawn O'Connell: Yeah, Greg. Let me take that, Andy. Greg, we hey, this is Shawn. Thank you for your question. Let me just say, we have a fantastic business. All of our macros are good. You know, you have this whole situation happening in the world and particularly in the US. Where the grid margin, you know, that is the gap between the grid capacity and the load growth is shrinking everywhere. And our customers are really looking for us to step in and help them manage that. And as you mentioned, we have this fantastic balance sheet with a lot of dry powder. And I think the inverse is true. We're not gonna wait on the sidelines.
I think probably some of this uncertainty will pressure some of the smaller players. And probably actually increase our ability to go out and find good targets. With that said, we still see a very long runway in A and D. And along with a lot of synergies with our domestic lithium manufacturer, You saw the lift we're getting from Brentronics. They're not the only target for us. So we're going to be very opportunistic with that dry powder and stay acquisitive. And, you know, as long as those targets fit our ROIC model, and we're really going to be, you know, putting a lot of rigor around what that should look like for our shareholders.
Andrea Funk: Yeah. And if I can add a little bit more to that, Greg. You know, early in Q4, we're wrapping up our budget, and this is before a lot of these tariff disruptions occurred. We had double-digit revenue growth built into our budget, low double-digit revenue growth, no acquisitions based business. We just had an outstanding Q4. That was not an anomaly. That outstanding Q4 was even with comps and trends being slow. The opportunity for those to improve from there. That's the base that we're building the strategy of, and the business will improve from there. We've got growth verticals that Shawn's looking at, efficiencies and execution. And all of that is before looking at any mergers and acquisitions.
Although with our deep rich balance sheet that we have, we have the ability to move fast. And we look at that on an ongoing basis. We do think Q1 is gonna be the low point with the results trending back to this record Q4 and upside from there as we had done in our original budget before all of these tariff issues started to arrive. But Albeit, it's gonna be tempered by the macro. So are we gonna get back there this year? We could get back there earlier in this year. Or is it gonna be later? It's gonna depend. Are the tariffs gonna get negotiated and tax if tax rate cuts hold? Will tariffs be extended?
Will be expanded? Will there be another liberation day kind of shock? That's all. What we don't want to do is make promises for things that we don't have full visibility of and are able to commit to fully. Q1 order book is improving. We mentioned that Motiv Power was pressured in Q4, but year on year, it's flat. As Shawn mentioned, we expect revenue lift from our maintenance-free offerings, A and D and Data center robustness, ongoing cost and trans recovery. And we know the strength of our balance sheet offers optionality for us to proactively mitigate whatever comes at us. We know we're all over and ahead of tariffs. We can talk about that later.
We've got a great playbook. We're committed to fully offsetting the impact. We've got a proven and effective refined playbook, and we know our products serve a critical role in these global markets. The real question is volatility. In a three-month span, our stock lost and regained $900 million in the marketplace. But the truth is nothing really changed. Our business potential is still there. Whatever tariff ends up, we got it.
Greg Lewis: Okay. And then you mentioned motive and the orders. The order intake. You know, I guess and I think it might have been David that mentioned the depending on how the know, realizing, hey, it's a house bill that needs to get through the senate and there's a lot of work that needs to be done around that. To change really anything. But there was a comment from somebody about it potentially being good. Is that related to all competition for PPPL from other whether it's electric battery electric or hydrogen or just if you could talk a little bit more about why changes to the IRA could be good.
And, does that also is that gonna be an impact from tariffs as well? Just given where some of your competition and motive is sourced? Is that kind of a fair way to think about it?
David Shaffer: I can start, Greg, and then Shawn can add a little color. The comments I made were about the fundamentals of the business and the orders are very stable. In terms of the IRA, in terms of changing the competitive landscape, that's not really on the radar screen as much as that's in the tariff. The tariff issues and how that's gonna shake out. And depending on what the plant of origin is for our various competitors and us and so that's really kind of what we're waiting to see is how all the tariffs land, see what that does to the competitive landscape.
But in terms of 45x or any you know, that's really if that's what you heard from my comments, that's that wasn't meant to have any impact on that. And, again, just to wanna reiterate, I know there's some hesitancy for us to give out order data because we don't normally do that. But the orders in Q1 year to date have been on very solid footing. Across all of businesses. The order softness was in Q4 as Andy said. But things that really, if you look at it over a longer time period, things have normalized and all indications from our order book are business as usual, pending what we see with these reciprocal tariffs.
Shawn, you wanna add any color to that?
Shawn O'Connell: Yeah. I do. I think the other part of your question, Greg, was, you know, how we see the market, and are there opportunities. Certainly, if you heard in the prepared remarks, we're now 29% maintenance-free in motive power. And there's just so much meat on that bone to continue that conversion. If we talk about that energy scarcity and then the other side of that coin, or energy security, the other side of that coin is labor scarcity. Our customers, not only do they not want to spend the money on the labor element to manage these systems, they can't get the people.
And so the people that they do get, they wanna dedicate towards revenue-facing opportunities in the warehouse or revenue-facing activities. So that maintenance-free conversion is going to continue. I'll tell you, we don't publish our quote rates, but our quote rates are far above that 29%. And so we know that's resonating with customers, and at the same time, we're being added into more and more of the large OEM and customer programs. So we continue to see ourselves with share pickup opportunities.
And then the one thing that may be influenced by tariff activity relative to your question about competitive positioning, should tariffs continue to remain high for Asia-based lithium or incoming lithium cells, you know, TPPL gets you most of the way of lithium without some of the downside risk and safety considerations. So we could actually see an uptick in our TPPL offering should that tariff environment stay robust on lithium. So to your point, the macros that are giving us lift and allowing us on flat volume to have the revenue and margin conversion that we've enjoyed. Fully expect to continue.
And to David's point, we just need the market to settle down a bit on this tariff activity, which we believe we're beginning to see.
Andrea Funk: And I'll add one other item, Greg, just to make sure there's no confusion there. As Shawn mentioned, and I think this is important to keep in mind, we do not allocate 45x into our LOBs at all. So no impact on pricing. The only thing that we do just always been part of our strategy, is to produce in reach so increase our domestic capacity. Our margins in Motiv Power 17.1% in the quarter, up 240 basis points. I mean, just a phenomenal quarter for Motiv Power. And going forward, other than this, you know, tariff disruption, that we saw on our Q4 books, it's gonna play out in Q1.
The higher conversion of maintenance-free, Shawn mentioned, managing OpEx tightly, But the NPIs that he's looking at, you know, we're talking about the Mode of Power BESS, helping our customers manage their energy. There's a lot of enthusiasm on that we should be launching that at the end of this year. We also announced the closure of our Monterey plant transitioning production to Richmond. That also aligns with this strategy, gives us maintenance as maintenance-free adoption grows, right sizes our footprint. We estimate that'll save about $19 million a year beginning in fiscal year 2027.
So while we know and we're as unhappy with the pressure that we're seeing temporarily in Q1 as I'm sure all of you are, I'm not worried about Moxtower at all. Going forward.
Greg Lewis: Thank you very much.
Operator: One moment for our next question. Next question comes from Chip Moore with Roth Capital Partners. Your line is open.
Chip Moore: Good morning, Chip. Hey. Good morning. Thanks for taking the question. Hey. I wanted to maybe dive deeper on energy systems. I guess, more any more color on sort of the green shoots you're seeing on potential network expansion and particularly anything around sort of this last mile communications, you know, I think OpenAI is now talking about mobile hardware. These type of things. Are you seeing some of those discussions underway?
Shawn O'Connell: Yeah. Hi. Hi, Chip. Good morning. It's Shawn. Thank you for your questions. Listen, I think what we're really seeing is, you know, we saw that pause as just as I was coming into the energy systems business and little over a year and a half ago, we saw that pause happening and coming out of that. There was a couple of issues that occurred. One, these things, these pauses are always particularly in these systems that we support. Always just create technical debt. It's one of those things that the operators can put off but they can't forestall forever. So you're seeing, you know, part of the recovery is just solving for the technical debt issues that they created.
And keeping the network back up and running and handling the break fix and that part of it. The second part of it, what we're seeing directly from users relates to what we're talking about, energy scarcity, but then also what I mentioned about processing AI-centered traffic. So a lot of the investment we're seeing, early investment as you might imagine, are in upgrading macro sites. They're also upgrading, you know, years ago, central office were being decommissioned or even sold off because the landlines are being decommissioned. Now operators are seeing those that brick and mortar as small AI data centers, if you will. So you note the Verizon and Frontier, I would call it remarriage.
And so we're seeing some of those upgrades. But it's not it isn't yet. I just wanna stress, it's not the you know, one of the you know, we're not getting the lift of one of the g build-outs of years past. But to your point in green shoots, we are starting to see the backbone enhanced and some of that investment going in.
Chip Moore: Thanks. That's helpful. And maybe on through that more near-term break fix and that's in that segment, it just how inventory dynamics and service utilization and some of those things.
Shawn O'Connell: Yeah. Most of I think most of the inventory pain we saw with inventory oversupply, we've largely moved through that. We're seeing a lot of new equipment orders and know, that's you bring up the service utilization fees. We always see equipment orders precede an uptick in service. And it's intuitive. Right? Because materials being provisioned as site acquisitions are being done, and site permitting, and then the service tends to follow. So I would tell you that our product performance has been robust. Over the past couple of quarters, and service is gradually catching up to it. But we expect more upside in services as that materializes.
Chip Moore: Appreciate it. And maybe if I could sneak one last one in. You know, maybe on the outlook. You know, any thoughts to what might give you comfort to resume full-year guidance at some point? Would that be sort of working through some of these temporary headwinds and see what happens on reciprocal tariffs. So just how are you thinking about that? Thanks.
Andrea Funk: Yeah. I'll take that, Chip, and thanks for the question. We absolutely are committed to resuming full-year guidance as soon as there's a little more clarity in what's happening with the overall landscape. You know, a lot of news even happening today. As you know. Hopefully, we'll be able to resume guidance next quarter, but it's gonna depend on what happens in the macro. And I think we're just committed to making sure that what we give in our guide, we've got visibility into.
Chip Moore: Thank you. Appreciate it.
Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to David for any closing remarks.
David Shaffer: Thank you, Kevin. In closing, I want to again express my deep appreciation to our investors for their continued confidence in EnerSys. Been a privilege to help guide this company through its transformation into a global leader in energy solutions. With a strong team in place and clear momentum heading into fiscal year 2026, I'm excited to see what EnerSys will accomplish next under Shawn's leadership. Thank you all.
Operator: Thank you, ladies and gentlemen. That concludes today's presentation. You may now disconnect, and have a wonderful day.