Conference Transcript - ENS 2026-05-06

Noah Kaye, Analyst — Oppenheimer

Well, good morning, everyone, and welcome back to day three of Oppenheimer's 21st Annual Industrial Growth Conference. I'm Noah Kay, Managing Director in Oppenheimer's Industrial Innovation Research Practice. We're very happy to welcome back to the conference the management team of Enersys, President and CEO Sean O'Connell, CFO Andy Funk, you know, Charlotte is on as well with the slides. And, you know, this is obviously a pre-quiet period discussion, so we're attentive to that and do want to acknowledge that. What we're going to do is I'm going to actually ask Sean to go with some opening remarks, and then we're going to get into Q&A. There's a lot to talk about, a lot of exciting things happening with the business. Sean? Yeah, thank you, Noah.

David Shaffer, CEO

I'm really thrilled to be here and talk about our story a little bit. And just quickly about us, As you can see on the slide, Enersys does stored energy solutions at a time when battery energy storage is all the rage. We've been quietly doing this for a century and a half. But we only serve the most mission critical applications on the planet. And we do this across a technology stack that starts with the key element of energy storage, the battery, but also involves power electronics and just think of this as the way to keep those batteries charged and then distribute their power to the applications that we serve. The software systems that control these systems and enable us to manage a lot of them in a network and the services that Enersys provides when we can't handle those systems remotely. And the opportunity for us at the moment is that we're really exposed to two major super cycles. We're exposed to what's happening not just in the data centers themselves relative to AI, but what's happening to the entire network and communications infrastructure relative to demand on the grid. And so certainly data centers are doubling and we have a commanding position there. But also the communications companies now need to refresh their networks to be able to process all that data. We have a commanding position in power utility and substation and substation switchgear control applications. The grid needs to get bigger and more sophisticated to handle all this power. So it's really giving us tailwinds across that segment. On the other hand, we're exposed to the airspace and defense super cycle. We're the largest battery provider to the Department of War, and we serve allied militaries around the world. And they are rapidly trying to address what they're going to do with battlefield electrification with drones, an unmanned vehicle. At the same time, Enersus has a commanding presence in soldier power, in defense-type weapons, and things that would lead into Golden Dome, for example. So, we're really right in the right spot and a key contributor to that conversation. But in our third segment, warehousing and logistics, that shouldn't be forgotten because we're in more than, in the United States, for example, we're more than one out of two warehouses. And we're managing the electric forklifts in those warehouses. Those warehouse operators are facing the same challenges on the grid that everybody else is, only they're not Microsoft. They can't go restart Three Mile Island, so they need a lot of help and different help. So we can provide battery energy storage systems to the warehouse that we can have work together with forklift batteries to offset costs and provide energy security to those customers. The other big challenge in the world right now is labor. And I'll just take a spin on something Larry Fink said and say we're going to run out of electricians before electrons. And the reality is it's tough to get qualified labor to administer some of these networks. So Enersys can help there in two ways. One, the software systems that we're enabling less human touch in our systems. And then two, when that's not possible, it's actually an Enersys employee, not a contractor that shows up to work on our systems. So if you look at the opportunity for us, we're competing in areas where we have, again, very, very high moat in terms of these are high customer trust environments. We have a real right to win. We have decades, if not centuries, of deep industry knowledge that we apply. And another point I'll make in this area, we're not subject to, you know, you have big cost pressures that come in in the electric vehicle supply chain for battery and lithium battery. And you see those numbers out in the ether that say a battery pack for EV might be $50 a kilowatt hour, $100 a kilowatt hour. For Enersys, because we're very specialized in these niche markets, all of our value add happens after the sell. So it's how do we get our systems to communicate in the environments that they're in? How do they communicate with the equipment downstream? How do they function specifically to that application? What are the other IEEE regulatory hurdles that we have to clear to make systems safe in those environments, and how do we address customer issues for the solution? So very, very specialized, a lot of industry knowledge there. And then our markets, our SAM is very interesting to us, our service addressable market, but it isn't interesting to people like Tesla, for example, who are many times our size and aren't going to put the work in to develop those points of industry knowledge to compete in our space. On top of that, Noel, I'll just tell you what we're doing since I took over as CEO a year ago. We've reorganized the company to do a couple of things. So we're calling this our Energize Framework, and what it means is that we've redistributed our internal resources in the company around some key items. So we've come up with our asset light contract manufacturing sort of electronic supply chain center of excellence, and that's helping us move very fast and scale in places where we're integrating. And then we have our lead-acid center of excellence, where we've taken all of the supply chain, engineering, process control, management, operational management, and focused them on this area where we're heavy capital intensive and our legacy-led business, and we're achieving a lot of cost synergies that way. And then we've got our lithium center of excellence. And a lot of people don't know this, but we've made nine chemistries of lithium at Enersys for decades. We have deep lithium expertise that we can now apply broadly to the other markets and use that knowledge to move faster and with less costly structures. So it's really helping us focus in key areas of the company where we're going to be placing key bets. It's helping us strip out cost and give us OPEX leverage so we can grow faster. And we're really pleased with how that's working so far. I can tell you that we've changed out certain members of the management team in my first year. The team's working together. They're, to lack of a better term, energized. We're working together with clarity and focus to solve these major customer challenges of energy, security, and labor scarcity. And as our results the first year have shown, we're delivering higher performance. So that's kind of the elevator pitch for the story.

Noah Kaye, Analyst — Oppenheimer

Yeah, John, it's a great place to start for us. You know, you talk about your markets, the company. I appreciate you breaking it out this way. Can you sort of help us level set on how much, what percentage of revenue those end markets represent for the company today?

David Shaffer, CEO

Yeah, so if you look at our network infrastructure business, so that would be telecommunications, utility, data center, that's about 42% of sales. If you look at our warehousing logistics business, it's about 41% of sales. And then our specialty business where A&D is currently today about 17% of sales.

Noah Kaye, Analyst — Oppenheimer

very good and and to slice things slightly differently with these centers of excellence lead acid power electronics lithium ion how how could we think about the amount of revenue each

David Shaffer, CEO

of those categories are responsible for today yeah i think what we've said publicly you know when we set out to do systems and uh now we're moving from systems into solutions we we you know We were probably 95 percent or more dependent upon a lead acid battery in our path to monetization. Now, if you look at it, we're trending much, much lower than that. Total concentration of revenues around lead acid, which which means that and Andy, you could you could tell me the specific number we've socialized so I don't screw up our quiet period here. But what that means is all of the other things we've done from a system perspective, and Noah, you've been around, so you know the alpha acquisition and bringing on the broadband power supplies and telecom power supplies, the growth in our lithium business, growth in that section of maintenance-free, but also the growth in A&D. Andy, are we 60-40 today in terms of lead acid to non-lead acid? What's the mix?

Andrea Funk, CFO

That's probably close enough. We haven't really given anything specific, but that's directionally correct, Sean. That's okay.

Noah Kaye, Analyst — Oppenheimer

All right. Where did I lose you? I'm sorry. No problem. Can we talk a little bit about the goals for this investor day? You know, broadly speaking, it's going to be your first, Sean, since taking over the helm.

David Shaffer, CEO

Well, we've been listening, Noah, and we know the first thing we need to do is deliver clarity around our story. So we intend to very much simplify what it is that we're doing. We've owed that clarity. We've been working on that clarity internally with our team. And so we want you to know why it isn't such a challenge to serve these markets, because the technology we're using can be broadly applied. We're going to tell you what the key bets that we're making that are going to help us grow above the traditional industrial growth rate. And we hope to communicate that in a way that it's very clear to you how we're going to monetize. The other thing I'd really hope to convey, I was at a recent conference and somebody sat down with Andy and I and said, don't you and Tesla do the same thing? So if I had to bet, I'd bet on Elon. And it made me realize they don't really know. We don't do what Elon does. Fortunately for us, he doesn't do what we do because he's got much bigger fish to fry. We need to communicate why we really are different. These are niche markets. When we talk about battery energy storage, we're not going after the open CNI market with ABB and Siemens and everybody. We're going after our markets, like the warehouse where we have a right to win, decades of knowledge. We know how all the forklift manufacturers batteries are functioning what the operational needs are and how to combine that with the best system for the best operational outcome from that warehouse we know that better than anybody on the planet and we're going to exploit those areas so we hope to give you that clarity kind of a final thing what's going to happen in five years what i think the council we've gotten and what we hope to do is show you the levers that we're going to use to build a credible and replicable model to deliver EPS growth year after year. And so we're going to spend a little time demonstrating what those areas are, how we feel about them, how we're going to continue to leverage disciplined OPEX, leverage NPI for market growth and inorganic M&A, you know, leverage the normal growth rates for our industry along with our tailwinds, and talk about how we add in capital allocation on top of that and we get you to a pretty good model. So those are the things we hope to accomplish that day.

Noah Kaye, Analyst — Oppenheimer

Very helpful, Sean. We're looking forward to it. I want to ask you a little bit about supply chain management. You know, the company's announced a number of factory consolidation initiatives. You're making more stuff in the U.S. You're reducing your Mexico exposure. you know, where do you see the opportunity for additional consolidation of your footprint? And conversely, where do you see the most need for expansion?

David Shaffer, CEO

Yeah, so that's a great question. There's a couple of benefits for us in the consolidation of footprint. For example, our data center business just continues to grow in the lead side substantially. And we've socialized some of those numbers externally, but it's great growth. we were capacity constrained in Tijuana. We've put all these investments into Missouri to increase our TPPL capacity. And the product actually, TPPL actually gives you much better density than the old lead calcium book mold format battery that was being made in Tijuana for data center. So we've done two things. We've unrestrained our capacity for growth in data center, and we're giving the user a better battery. So we're making decisions like that where we're sort of, you know, closing the door a little bit on old technology and making sure that everything we're doing is forward looking. In terms of managing the old lead apparatus, we've done yeoman's work. There's still some opportunity out there. And how you should look at it is as we, our job is to deliver, as I said in our model, replicable results year after year. As we see markets, we don't want to be ahead of market, but as we see markets trending to different technologies, you should expect this management team to just have a steady diet of reducing the areas that we don't think will represent the future and expanding in the areas that we do. We've socialized. We're going to build a lithium plant in Greenville. And we don't, we thought we'd have an announcement by now. We're moving at the pace of government. We still feel very, very good, very strongly about that. And there's, when we release that model to you and talk about the intricate parts of it, or the constituent parts of it, I think you're going to find we've done a really nice job de-risking what that looks like, a really nice job in, you know, getting absorption and pre-loading absorption and de-risking technology. And so you'll see expansion in areas like that lithium plant that represent the future and where our lithium roadmap's heading. And then you'll see expansion into areas that are near-term adjacencies, like we've talked about battery energy storage systems, starting with motive power in the warehouse. You'll see us expanding to accommodate the munitions backlog we've socialized. And the nice thing is we have real partnership with the defense apparatus to help us fund equipment and do different things. So it's not just on Enersus' shoulders to do that from a capital allocation perspective, although we've got lots of dry powder if we needed to go it alone. So those are the areas that you'll see strategic bets on growth on where the future is heading.

Noah Kaye, Analyst — Oppenheimer

Well, you know, we don't want to jump in front of that announcement around the lithium plant, but we did note that DOE included funding for it in the list of kind of projects that are retained here from the original funding source. So maybe just comment a little bit on that and how it might impact your thinking on sort of the size or the scope of the facility.

David Shaffer, CEO

Yeah. So it'll be a bit different than what we would have said a year ago. And we've spent that year being very mindful about what that looks like. So as we point this towards the defense apparatus, you know, the emphasis won't be on an electric vehicle cell format that was for EV charging. It'll be more for, you know, in line with helping the Department of War consolidate things like drone and soldier power platforms, which incidentally, over 90 percent of the supply chain or the warfighter originates in China today. So it gives you an idea of why this is such a strategic imperative. And when we do that, when we point it at those markets, we're also dealing with program sales where we're not subject to weekly commercial fluctuations in the EV battery supply chain market, for example. So it's really a lot of what you should hope to see from us and what I think you'll see, a massive de-risk in what that project looks like and a very smart way of

Noah Kaye, Analyst — Oppenheimer

going about it. And I guess in the interim, just talk about your sourcing strategy on lithium today. You know, the recent rise in lithium pricing, we've taken note of any impact to your cost structure. And I guess more importantly, you know, does your existing supply base support, you know, at least in the near term before the factories built a ramp on things like lithium

David Shaffer, CEO

UPS offering? Yes. So I would tell you that for us, all things being equal in this make versus buy analysis that we do, because of the fact, by merit of the fact, that all of our value add and part of our strategic premise comes after the sell, that the sell, whatever the cost of the sell is, it's equal for everybody. And so that's sort of level setting in the marketplace. On top of that, then you have to make sure that the communications, in the case of a data center with the UPS and the site management system is there. You have to make sure the cybersecurity and gateways are there. There's a different set of testing and UL requirements to the data center space versus the EV space. So that's all the secret sauce and process knowledge and customer knowledge Enersys is bringing after the cell. So if the sell cost goes up, it goes up for everybody, and it's up to us to manage then our part of the value add to ensure we have the winning solution. The other thing is, if the cost gets prohibitive on the lithium side for data center, we're going to sell a lot more TPPL batteries and currently, you know, continue to enjoy very nice CAGRs and what that looks like on the lead side. So we sort of have a hedge there. The final part of your question is about supply chain. We are working with suppliers that can grow and scale with us and some of the most credible in the world. So we believe that we have the ability to move pretty fast and support our customers. But we have one other thing, Noah, that I think might be a little underappreciated in the market. There's a lot of startups out there that can't, that won't make inventory investments to be able to serve customers because they can't. Enresys has the ability to do that. So we can put some of that dry power to work to bolster our supply chain and make sure that we have plenty of ability to service our customer.

Noah Kaye, Analyst — Oppenheimer

That's helpful. Look, we're all tired of talking about tariffs. I know you've had, I think, a tariff task force in place now for quite a while. Maybe just sort of a refresh on your manufacturing footprint and supply chain and commodities exposure to the current tariff regime.

David Shaffer, CEO

Yeah, incidentally, I'm super proud of that team. I mean, they've really mitigated substantial, if not all, impacts to our shareholders in the work that they've done. And, you know, you bring up the point about a global footprint. So, you know, we're distributed across three major regions, APAC with a couple of factories still in China, facilities and production facilities in places like Melbourne, Australia. And then we have a concentration in Europe and where we manufacture predominantly in the north of France, UK and in Poland. And then we have multiple factories in the United States and multiple facilities, depending upon whether they're lithium for A&D or lead facilities or electronics facilities. The team has done a nice job on a couple of fronts. One, they've diversified our supply chain in ways that never existed going into COVID or the big supply disruptions that we've seen. They've gotten the engineering teams involved to design in more microprocessors, for example, in the electronic supply chain to give us optionality there. They've done really yeoman's work in the lead apparatus to, as we saw Antimony go crazy last year, they worked with our engineers to change some of the metallurgy to defray costs there. So the team has gotten very good. And I will tell you, no, with the centers of excellence, now that we have specific deep expertise on the electronic supply chain, on the lead supply chain, on the lithium supply chain, and they're focused, they're moving much faster and solving these problems at a rate that is unremarkable because we haven't come to you with big failures to talk about. They've mitigated the problem. So we feel very good about that. What we don't know, and clearly where everybody will have exposure, I filled up my car this morning, and it requires high octane, and I was shocked. It paid like six bucks a gallon. And, you know, depending upon, you know, these energy prices, on one hand, it'll give us tailwinds. You know, when the cost of fuel goes up, you typically see motive power, you know, fleet operators move to electrification faster from their old gas trucks. So that provides a little tailwind. But in general, energy prices going up for everybody across the board is problematic. And what net effects and trickle down effects it'll have in our markets is yet to be seen. So I think there's still some uncertainty there for us around this. issue of Strait of Hormuz, energy, and then fortunately for us, we don't have a lot of our dependent supply chains moving through the Strait of Hormuz where it's going to restrict production, although we could pay more for overland freight in some cases.

Andrea Funk, CFO

No, I can give you a little bit of dimension if you'd like. About 22% of our U.S. sourcing is exposed to tariffs. I think we've shared previously we've got about $70 million dollars of annualized exposure because it went into effect during 26. I think we have about 50 to 60 million of direct exposure fiscal year 26, about 10 to 15 million indirect of which we've mitigated from supply chain mitigations, you know, maybe 25 to 30, leaving us with about 40 million dollars of net tariff exposure, which to Sean's point, we proactively that tariff task force fully offset. And they're now on to the inflation. So while we can't control the macro, we feel very

Noah Kaye, Analyst — Oppenheimer

good about our ability to come back there. Thank you, Andy. That's very helpful. Let's dive in on the data center market. The business has seen very healthy growth. Even if lithium adoption is growing faster than lead acid, the fact that you've been able to see the growth rate you have lead acid is commendable. And so the question we've gotten from folks is, you know, where does lead have an advantage versus lithium UPS in the data center market? And how does share differentiate today between kind of traditional compute and high density or AI compute? Yeah, so, you know,

David Shaffer, CEO

it's a very smart question because you've appreciated that there are, within the realm of data center, there are clearly different objectives, and so there's different architectures. So a large language training data center may only require four nines of reliability versus five nines of reliability because it isn't the same criticality around the loss of data, whereas a financial institution is still five nines of reliability. We are still seeing greenfield builds in lead acid. And they tend to be in areas where there are constraints either by the authority having jurisdiction, the local municipality, and their attitudes toward lithium. They could be constraints for the building architecture and limitations on fire suppression because lithium is a volatile chemistry. It may just be the risk tolerance of that particular user, but it also could be cost. And lead acid, even TPPL selling at a premium to traditional lead, is still below the low end of LFP or some of the other lithium technologies when you see it come in. And remember, all of that value-add stuff that happens on top of LFP, so you can't, when I make that statement, it's LFP in the data center application, not the LFP raw price that you see in the EV supply chain. So there's a lot of factors that go into that. So we're still seeing a tremendous amount of lead acid going to greenfield. The other thing that you can do with TPPL that you wouldn't do with lithium is you can replace traditional lead acid with TPPL in a replacement cycle because the form factors are very similar, the charging is very similar, the fire suppression is the same. You don't have to modify the site. So we can actually cannibalize traditional lead acid with TPPL where lithium would not do that. So that's also where some of the lift is coming from.

Noah Kaye, Analyst — Oppenheimer

Can I sort of double click then on kind of the mix of TPPL versus traditional lead acid that's going to this market for you?

David Shaffer, CEO

I don't know, Andy, if we've socialized that externally, the mix between lead calcium, TPPL.

Andrea Funk, CFO

We haven't. We haven't.

Noah Kaye, Analyst — Oppenheimer

We'll look forward to more color on that. But certainly the, you know, advantages make sense from a performance standpoint. You know, you've recently started talking, of course, about developing the UPS offering with lithium. Maybe can you just size how you see the lithium UPS opportunity and how you plan to win share in the market?

David Shaffer, CEO

it. No, it's massive. Our UPS business today, our revenues are about, correct me if I'm wrong, Andy, approaching about $450 million. That's the chunk that's data center today, and it's all that asset. If 60% of Greenfield data center is now going lithium, and you're still dealing with a cost delta of three to five times that of lead acid, you're talking about a very large opportunity with data center doubling. I look at it and just think if I had the same type of market share that I had in lead acid, we could at some point be, we would be more than double our size today. Now, I don't want you to put that in a model because we have to go out and prove our system. We have zero market share in lithium today, but there's no reason why our SAM couldn't be well above a billion dollars in that area or our right to win. So we're very excited about that opportunity.

Andrea Funk, CFO

If you look at where it could go, no, I can just give you a little bit of data to kind of frame it. We look at because there's a pricing delta as well as just the growth in the overall market. So about a gig of stationary UPS systems using Enersys batteries is about $100 million in sales. And most of the new builds are going in for lithium for stationary UPS. So if you see the hyperscalers right-size the backup to perform, that requires continuity. So about 60%, 80%, as we mentioned, of the total load is battery-backed up in modern AI facilities. reduces the battery hardware per gigawatt versus the legacy designs, particularly with stationary UPS, but raises the performance services and lifestyle value for the installation system. So the overall data center capacity is expected to be by 2030 about 100 gigawatts. And we're focusing on the centralized UPS. So that portion of the addressable market, probably using that ratio, is going to be in the vicinity of $7 billion by 2030. So massive opportunity for us, again, where we have a leading market share position in the lead-acid piece, same customers who are now going after lithium.

David Shaffer, CEO

Andy just messed up all of my sandbagging.

Andrea Funk, CFO

It's going to take time to ramp up, but we've kind of gone through that math and communicated that externally already.

Noah Kaye, Analyst — Oppenheimer

I guess the follow-up question here is around right to win. And there are two categories here where the company has historically differentiated, right? There's the niche chemistries that have been developed for bespoke duty cycles. And then there are these commodity cells you're talking about where you have your own secret sauce around controls and power electronics and ruggedization. So how do we think about where the lithium UPS differentiation sits? Is it more the niche chemistry? Is it more the secret sauce? Is it some of both? Help us understand.

David Shaffer, CEO

Yeah, there's a lot in the alchemy there. And you've elucidated it very, very well. But on top of that, Noah, these are high trust environments. And we have a primary seat at the table with all of the hyperscalers and the names you would know through decades of earned trust. And batteries are fickle creatures. And there are always issues, right? Ohm's law is very interesting when you start subjecting it to harmonics and all sorts of other concepts. And Enersys just has a track record of solving the user issue, jumping in and helping out, and then asking whose issue was it. So, again, that high trust is earned over time and experience. And we've garnered that in LeadAsset. The other thing that we do is we handle the supply chain, the installation, and the aftercare services very well. So the biggest providers of lithium today into a North American data center market aren't here. They don't have those services. In fact, you hear horror stories that you're given an email address if you have a problem and you're guaranteed a response in 72 hours. That doesn't cut it. These are five nines reliability. Our industry association is called the 7x24 exchange, meaning you have to be up 24 hours a day, seven days a week, or these systems wouldn't exist. So what we have actually, it's painful for me as CEO, but we've had users come to us, large users, the largest in the world, and say, until you get your product up and going, would you handle your competitor's product for us? We'll pay you a markup over what we're paying them. That's not the issue. The issue is we want your service, your supply chain, the way that you address issues when we have them, and we'd like you to be involved. So all that tells me is the right to win is every bit as strong as I think it is, and that we just need to move faster in getting our product out there. I don't want to go down the rabbit hole of handling somebody else's.

Noah Kaye, Analyst — Oppenheimer

Yeah, and to follow up on that, I mean, with UPS, it has historically generated a recurring revenue stream. So just how do you think the value of a workforce with experience servicing DC power in the data center evolves over the next five years?

David Shaffer, CEO

Oh, I think it's going to help us further embed stickiness. These systems have to be watched more closely than lead acid. They have to be remotely monitored. If you're tracking the, you know, I made the Larry Fink comment earlier. But if you're tracking the trades shortage inside data centers across the board, from HVAC cooling to the electrical infrastructure, mechanical infrastructure, these data centers are more and more and more reliant on remote handling of their systems. And there's only so much that can be addressed through the building management system. So Enerso sees this as a massive opportunity. The other thing that's going on that I think is really important for investors to know, when lithium first came out and first started making it splash in the marketplace, there was this idea that it was going to last so much longer than lead that it would change the economics of the industry. The problem is this. With the AI component to data centers, the loads are intermittent. So you could go from 100% load to no load or 30% load in milliseconds. This is wreaking havoc on battery systems. And so, you know, I first heard, as long as I've been in the industry, every time a new chemistry approach comes out, I'm hearing it's going to be a 15- to 20-year battery. I've heard that in my career. It's no different now with lithium. Some of these operators are finding their lithium batteries with high intermittency are lasting two years, three years. So the nature of these loads, we think, is actually going to have very nice exponential growth factors in battery volumes in the aggregate. So we're excited about that. And then, you know, Noah, as we extend that conversation into what does high voltage DC look like and 800 volts DC and what's the implications for onersis? Well, that just means for us, it's always been DC for us because we're in the middle of the rectifier and the inverter and the UPS system. But it just means for us the systems are going to get bigger. We're going to sell more cells. There's always going to be a need for centralized backup in the data center space where we've been the strongest. And we think those are all great tailwinds for EnerSys.

Noah Kaye, Analyst — Oppenheimer

Well, we're looking forward to hearing more about this. We've got earnings coming up in a few weeks and then the investor day. A lot to be excited about here. We didn't even get to defense and some of the other growth initiatives, but plenty more for people to dig into. And of course, they can contact us, or Lisa and Charlotte, the company, to learn more. We've got to close it there, but Sean, Lisa, thank you. And Andy, of course, thank you very much for the discussion today. And I hope you and everyone else has a great rest of your day at the conference.

David Shaffer, CEO

Our pleasure, Noah, and thank you for including us.