Q2 2025 EnerSys Earnings Call

Shawn O’Connell

Thanks, Dave, and hello, everyone. I’m honored to succeed Dave as EnerSys’ CEO and thank our Board for their trust and confidence in me. Having been a part of this incredible company for 21 years, including the decade prior to joining EnerSys as an outside reseller of EnerSys’ products within my own company, I’ve had the privilege of working with some of the most talented people in the industry and witnessed tremendous progress made under Dave’s leadership for which I am deeply grateful.
Under Dave’s leadership, EnerSys is transformed from the traditional lead acid battery company with limited scale into a global leader in energy system solutions, growing revenue by some 35% through strategic acquisitions and groundbreaking product innovations. His efforts have built a unique portfolio of smart battery and energy management technologies, including both lithium ion and lead chemistries, leaving an indelible mark on the company and our industry.
I look forward to building on that strong foundation we’ve established, working with our team to continue our journey of innovation and growth as we pursue new opportunities that align with our long-term vision in delivering stakeholder value.
As Dave mentioned, we will be working closely together to ensure a seamless transition. Over the next six months, I’ll be conducting a listening tour across the organization and with other key stakeholders, including customers, partners, our analysts, and investors, as I get up to speed on my expanded role and responsibilities. For now, it’s business as usual. Our goals, initiatives, and day to day operations remain our focus with minimal changes.
Now I’ll turn it back over to Dave to discuss the results of our second quarter.

David Shaffer

Thanks, Shawn. Before I go into an overview of the quarter, I would like to extend our sympathies to those impacted by the devastating hurricanes in the southeast. I would also like to thank and recognize our EnerSys service teams for working tirelessly to maintain power continuity for our customers affected by the storms.
Please turn to slide 5 for a review of our second-quarter performance. In the second quarter, we delivered revenue and EPS in line with our guidance ranges and demonstrated our ability to generate strong and accelerating financial results in an [uncircuit] market environment. Our balanced business portfolio has proven resilient, allowing us to leverage exciting areas of profitable growth while weathering softer demand in other end markets.
Adjusted gross margin of 28.7%, up 210 basis points over prior year, with adjusted operating earnings up 11% year over year and 8% sequentially. These results were attributable to impressive motor power performance on continued customer enthusiasm for our maintenance-free offerings; growth in our A&D business, including the accretive addition of Bren-Tronics; solid cost discipline, particularly in our energy systems line of business; as well as increased IRA benefits despite ongoing but easing headwinds in our communications and transportation markets and FX pressure.
While we’ve adjusted our full-year revenue guidance modestly to account for the spending weakness in the Class 8 OEM truck market and deployment delays in fast charge and storage, we remain confident in our core strategy and the significant opportunities across our entire portfolio visible on the horizon. Our focus remains on delivering results. We’re maintaining price and developing higher value products that lift our portfolio mix and create enhanced customer intimacy. We’re optimizing our cost structure to adapt through cycles, we’re improving productivity with investments in automation and flexibility, and perhaps what I’m most excited about, we’re advancing our transformative strategic priorities.
This quarter, we achieved several key milestones in our transformative strategy. We were pleased to have been selected for a $200 million Department of Energy Award to partially fund our planned lithium giga factory and have received formal Board approval to proceed with this important project. The integration work and results of the Bren-Tronics acquisition are exceeding our expectations and we’ve installed our first fast charge and storage system at our launch customer site. We are seeing promising demand indicators and positive momentum across our business, which gives us optimism heading into the second half of the fiscal year.
Overall orders were up year over year, with particular strength in energy systems Americas, in which we received a 30% increase in orders this quarter on 10% lower revenue, clearly indicating the inflection points in both years and driving the second consecutive quarter of increases in energy systems backlog.
Andy will give details on our second-quarter fiscal ’25 financial performance and outlook, but I will first provide a few more highlights and business drivers behind the results. Starting with energy systems, we saw a sequential increase in revenue for the first time in six quarters driven by improvements in communications and we were pleased to deliver higher adjusted operating earnings for the third consecutive quarter. Sales were down $40 million versus prior year, but up $21 million sequentially, driven by the softer but recovering spending by our communications customer as well as robust data center demand.
Service revenue was notably challenged this quarter due to timing of projects which we expect to come back in the second half of the year. We were particularly pleased to see the increase in communications orders in Q2. As we have previously mentioned, network resiliency can only be deferred so long. And that spending resumption is what we are witnessing in our order book. We are not yet seeing significant investments in network expansion, but with lower interest rates and increasing last-mile delivery volumes on higher traffic spurred by the surge in AI, we’re confident it is imminent.
Motive Power was once again a bright spot, with increasing volumes and margins versus the prior year. Our warehouse and logistics customers recognize the value of our higher margin proprietary maintenance-free offerings, seeing us not only as the power provider but as an energy solutions provider who helps them address their profit and labor challenges and achieve their sustainability goals. We are seeing more inbound customer interest in our lithium solutions, and the announcement of our own lithium-ion cell factory to supply our products has gained customer attention and support.
In Q2, sales of our maintenance-free product offerings grew up 24% compared to the prior year, representing 26% of total Motive Power sales compared to 22% in the prior year. This growth underscores our competitive positioning and reinforces Motive Power’s ongoing success.
Industry data continues to support our expectations of mid- and long-term market growth opportunities. A leading industry association’s research conveyed a 50% increase in current conditions’ confidence levels compared to the last quarter. And industry experts are anticipating lift truck shipments to reach near double digit growth for next calendar year.
Although dealer truck inventory is currently elevated, we expect to enjoy heightened battery orders when our dealer sales pick up and the excess inventory is depleted. We believe that the uncertainty associated with the Presidential election has delayed decision making and should now begin to resume momentum.
In specialty, revenue and adjusted operating earnings growth was driven by strong performance in aerospace and defense, bolstered by the accretive impact of our Bren-Tronics acquisition, but offset by continued softness in Class 8 truck OEM demand, which is not specific to EnerSys and reflects the broader truck market. A&D demand remained very healthy with a solid order book and several aerospace and defense opportunities — Department of Defense opportunities in the pipeline.
Despite the year over year and sequential improvements in this business, our transportation volumes were below our expectations for the quarter. Although we grew our US transportation aftermarket revenue 31% in the first half of fiscal 2025 versus the first half of ’24, we were not able to fully offset the ongoing softness in Class 8 truck OEM revenue which was down 37% first half of fiscal ’25 versus prior year.
Class 8 truck demand is expected to remain suppressed through the end of our fiscal year due to high truck inventory and flat tonnage delaying OEM requirements. Encouragingly, US Class 8 net truck orders picked up in September and our fleet customers indicate plans to increase truck procurement toward the end of our fiscal year, which should boost battery demand with a one quarter lag.
Combined with the historical battery cycle data, we anticipate stronger transportation demand entering our next fiscal year. Additionally, much of our aftermarket value comes from premium automotive sales with customers such as AutoZone and NAPA enthusiastic about the superior performance of our Odyssey batteries.
We’re actively negotiating new retail contracts and anticipate increasing our spot by activities until these contracts are in place later in the fiscal year, positioning us for both volume and margin expansion as timing is well aligned with the completion of our Missouri Plant 1 investments.
In our new ventures business, we’re excited to have delivered our first fast-charging storage system at the end of the second quarter. This marks an important milestone, signaling the beginning of a new chapter in energy management solutions for EnerSys. The system installation was executed within four hours and as expected.
Please turn to slide 6. Let me share some highlights from our progress on our strategic priorities during the second quarter, starting with Innovate. We continue to deliver cutting-edge new product introductions, including software-driven energy management systems, providing customers with flexible and efficient solutions that meet their evolving needs. In September, our EnVision Connect solution for wireless system monitoring and optimization of network batteries was recognized by Lightwave plus Broadband Technology Report as among the best in the industry for cable broadband innovation. With a small bluetooth chip embedded into the battery, EnVision Connect enables our customers to proactively manage and monitor their battery assets with real-time data.
In October, the EnerSys ABSL lithium-ion space battery was successfully launched to onboard NASA’S Europa Clipper spacecraft. Our battery powers the spacecraft’s flight and scientific instrumentation. The battery provides over 540 ampere hours of capacity through a 28-volt system performing various charge and discharge cycles throughout the mission’s duration. The lithium battery was specifically designed and minimizes the magnetic interference within the spacecraft. This achievement underscores our lithium engineering excellence and decades of experience collaborating with NASA to develop custom high-performance energy storage solutions for space exploration.
We continue to focus on optimizing the business as well. Our investments in TPPL production flexibility across our Missouri plants are progressing according to plan and will be complete by the end of the fiscal year. This initiative, including the installation of two new automated lines in Plant 1, will double production capacity while requiring only half the labor, enhancing our production flexibility and reducing operating costs. The increased volume and improved cost absorption will further drive earnings expansion, delivering meaningful benefits to our business and accelerating. The highlight of the quarter is the advancement on the new phase of construction plans for our lithium-ion cell giga factory for which I will now provide a brief overview.
Please turn to slide 7. We discussed our giga factory in detail during our recent Tech Talk and I will summarize a few key points today. Our new factory will be approximately 500,000 square feet in size with an initial capacity to produce five gigawatt hours of lithium ion cells annually located in Greenville, South Carolina. Our total investment is estimated at $665 million and will be partially funded by federal state and local incentives, including the $199 million DoE award.
From a strategic perspective, this new factory provides a reliable domestic supply of lithium-ion cells for EnerSys’ lithium battery production, supporting our mix shift to higher performance lithium solutions. It has the scale and the flexibility to meet our customers’ diverse needs and, importantly, will meet stringent DoDrequirements, strengthening our relationship with this important customer.
From a financial perspective, benefits include de-risking our long-term revenue and earnings growth, reducing our input costs, and unlocking additional and incremental high-margin revenue opportunities, which collectively drive a strong financial return profile for our shareholders. We are forging ahead with our plans and we’ll provide ongoing updates as we progress with this strategic investment.
Please turn to slide 8. We also continued to progress on our sustainability journey and recently published our detailed climate action plan roadmap to achieve Scope 1 neutrality by 2040 and Scope 2 neutrality by 2050. We are unwavering in our dedication to collaborate with our customers and suppliers in decarbonizing our value chain and are excited to share our continued progress on this path.
In closing, while we expect that market uncertainty will persist through the coming months, we are confident our second half of the fiscal year is on track for continued top-line and profit expansion. We’re bullish about our strong position as the leading provider of energy storage solutions as we continue to deliver innovative products and services in growing end markets, where the needs for access to reliable power is increasing exponentially. We remain focused on delivering profitable long-term growth to our shareholders.
I will now turn it over to Andy to take you through our results and outlook in greater detail. Andy.

Andrea Funk

Thanks Dave. Please turn to slide 10. Second-quarter net sales of $884 million were down 2% from prior year driven by a 3% decrease in organic volume from the headwinds and communications and Class 8 OEM markets Dave mentioned, as well as 1% price mix pressure from lower proportionate sales of higher margin power electronics to our communications customers, which were partially offset by 2% positive impact from the Bren-Tronics acquisition.
We achieved adjusted gross profit of $254 million, up $14 million year on year, including IRA benefits booked as a reduction to cost of goods sold in the quarter due to adjusted gross margin improved by over 200 basis points versus prior year to 28.7%, of which nearly half was due to the increase in higher margin Motive Power revenue and the accretive impact of Bren-Tronics, with the balance being attributable to higher IRA benefits.
Our adjusted operating earnings were $115 million in the quarter, up over $10 million versus prior year, with an adjusted operating margin of 13%. Excluding the IRA benefits, adjusted operating margin increased approximately 20 basis points year on year. Adjusted operating earnings benefited from the realization of our cost improvement actions and energy systems. Adjusted EBITDA was $129 million, an increase of approximately $13 million versus prior year, while adjusted EBITDA margin was 14.6%, up 170 basis points versus the prior year.
Adjusted EPS for the second quarter came in above the midpoint of our guidance range at $2.12 per share, an increase of 15% over prior year. In the second quarter of fiscal ’25, our effective tax rate was 2.3% on an as reported basis and 19.4% on an as adjusted basis before the benefit of the IRA compared to 18.3% in Q2 of ’24.
Let me now provide details by segment. Please turn to slide 11. In the second quarter, energy systems revenue declined 10% from prior year to $382 million primarily driven by the lower volumes and price mix pressures previously mentioned. Revenue was up over $20 million sequentially, the first increase in six quarters as we began to see improvement in these challenged end markets.
Adjusted operating earnings of $24 million improved for the third consecutive quarter, reflecting the increased revenue on top of the optimized cost structure and were in line with prior year despite the softer market conditions and lower revenue. Adjusted operating margin of 6.4% was up over 100 basis points sequentially and increased 30 basis points versus prior year. We exited the quarter with very encouraging order trends and communications resilient spending and we expect to be able to hold OpEx restraint even as revenue further recovered.
Please turn to slide 12. Versus prior year, Motive Power revenue increased 3% to $367 million, largely driven by volume growth. Motive Power again reported strong adjusted operating earnings this quarter, contributing $58 million, up 8% over prior year, representing our highest Q2 ever. Adjusted operating margins were at record highs of 15.7%, up 70 basis points over Q2 ’24. We remain optimistic coming out of a seasonally slow Q2 with good visibility from industry order data. As lithium product sales increase, we expect healthy margins, but in the near term, the growth will be reflected as higher volume increases with suppressed price mix due to the elevated ramp up cost pass-through impact of these batteries.
Please turn to slide 13. Specialty revenue increased 9% from prior year to $135 million driven by a 12% positive impact from the Bren-Tronics acquisition and a 1% increase in price mix partially offset by a 4% decline in organic volume. Q2 ’25 adjusted operating earnings of $8 million were up approximately $2 million versus prior year, with an adjusted operating margin of 5.4%, up 90 basis points.
Margins remain below our target range of low double digits due to pressure from lower Class 8 OEM transportation volumes and the impact of under-absorption in our Missouri plants. However, we are seeing the early benefits from the Bren-Tronics acquisition and beginning to grow our higher margin transportation aftermarket volume.
Given the incremental transportation aftermarket opportunities and the broad strength of A&D end markets combined with the enhanced highspeed flexible capacity expansion and the full contributions from Bren-Tronics, we remain optimistic about our opportunities in specialty and expect to see ongoing improvements over the next several quarters.
Please turn to slide 14. Positive operating cash flow of $34 million offset by CapEx of $30 million resulted in free cash flow of over $3 million in the quarter. Operating cash flow absorbed the transition tax payment of $11 million and over $40 million of investment in primary operating capital as sales accelerated during Q2 ’25, leading into a more robust second half of the year versus softening demand in the prior year. In addition, we increased capital spending by $11 million year on year, primarily from the incremental Missouri investments previously mentioned.
Note that the benefit of our IRA credit will not have the full positive impact on our cash flow until our fiscal year 2024 tax filings are finalized and we receive our first 45x tax refund of over $100 million, which we expect to get near the end of this fiscal year. During the quarter final section 45x regulations were issued by the US Treasury Department and made public on October 24. We believe these align with and support our current interpretation and application of the law.
As of September 29, 2024, we had $408 million of cash and cash equivalents on hand and net debt of $840 million, representing an increase of approximately $329 million since the end of fiscal ’24. This increase is primarily attributable to the $206 million acquisition of Bren-Tronics, $75 million of stock buybacks, $19 million of dividends, $66 million of CapEx, including the Missouri production investments and the purchase of land for a planned lithium plant, and a $58 million investment in primary operating capital to support the underlying business ramp as we anticipate in the second half of this fiscal year.
Our credit agreement leverage ratio is 1.6 times EBITDA. Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. Although our leverage increased modestly during the quarter, we anticipate maintaining our net leverage at or below the low end of our 2 to 3 times target range, providing us with ample dry powder for our capital allocation decisions.
Please turn to slide 15. During the quarter, we paid $10 million in dividends and repurchased $64 million in shares. We currently have approximately $258 million remaining on our buyback authorization, including a $200 million incremental authorization approved by our Board yesterday. We continue to screen for additional attractive bolt-on acquisition opportunities, such as Bren-Tronics, which meet our disciplined strategic and financial criteria.
Please turn to slide 16. We are seeing encouraging demand trends in the majority of our end markets, including healthy trends in our Motive Power data center and aerospace and defense businesses, and, while still challenged, nicely improving orders in our communications market and positive early demand signals in Class 8 truck OEM markets which we expect to improve steadily over the next several quarters. We’re excited about our progress in new ventures, delivering our first fast charge and storage system at the end of the second quarter, although deployments have taken longer than originally expected.
Our fiscal third-quarter 2025 guidance range is $920 million to $960 million of net sales with adjusted diluted EPS of $2.20 to $2.30 per share. Our guidance anticipates a modest sequential improvement in both communication spending and transportation aftermarket volume, incremental revenue and earnings from Bren-Tronics, and ongoing revenue growth in Motive Power.
In consideration of the current market conditions and delays in fast charge and storage, we are modestly lowering our fiscal 2025 revenue guidance range now set at $3,675 million $3,765 million of net sales versus prior guidance of $3,735 million to $3,885 million.
As we enter the second half of the year, we expect the profitability of our business to deliver accelerating returns driven by improving volume, favorable product mix, the accretive contribution of Bren-Tronics, continued cost improvements, and benefits from operational efficiencies flowing through to our bottom line. With recent Board approval, we are excited to advance the next phase of construction plans for a lithium-ion gigafactory in Greenville and expect to incur modest-related non-capitalizable expenses in the second half of the year as we move forward with this strategic project.
As a result, we are tightening our fiscal 2025 EPS guidance range on increased confidence in previous earnings expectations, but slightly lowering the midpoint by $0.10 per share to account for these increased expenditures. Our expected adjusted diluted EPS range is now $8.75 to $9.05 per share versus our prior guidance of $8.80 to $9.20 per share with a pre-IRA tax rate of 20% to 21%. Our CapEx expectation for the full fiscal year 2025 remains in the range of $100 million to $120 million after absorbing incremental spending on our planned domestic lithium plant.
Although we expect that end markets may remain uncertain during near term given the dynamic macro environment, we are excited to be standing on the threshold of our future. During Dave’s impactful tenure as our CEO, he has established EnerSys as a leading provider of energy systems and storage solutions. We are confident in our positioning and strategy and we are extremely optimistic about the tremendous growth opportunities ahead of us. I’m grateful for Dave’s leadership and mentoring and look forward to beginning the next leg of our journey under Shawn’s strong leadership in May. We remain focused on delivering long term value to our stockholders.
With this, let’s open it up for questions. Operator?

Operator

(Operator Instructions) Brian Drab, William Blair.

Brian Drab

Good morning. Thanks for taking my questions. And Dave, it’s been great working with you. Congrats on your decision. And Shawn, looking forward to getting to know you better.
Yeah, maybe we could just start with the question on the fast charging and storage. Can you give a little more detail around what is causing some delay there? And how many units have shipped from that initial order of 50? And is it still just the the one customer landmark that we’re talking about at this point?

David Shaffer

Yes. Brian, we’re still just talking about landmark to start. And I think the technical elements of the UL certification process which we’ve completed, I think what we underestimated a little bit was sort of the bureaucratic part of the certification process, getting all the documents on file and through the system. So that’s the main source of some of the delays. And then there’s been some site prep issues from the customer’s perspective as well. So we’ve got one system in the ground, we’ve got a few more ready to go, and our goal continues to be to get 15 — have 15 ready to go this fiscal year. That’s what we’re continuing to drive on.
And as you can imagine, the system, especially when it’s complicated as this, the early phases are a little choppy and probably impact some of the modeling that I know Lisa and Andy are working with you guys on. But the key for me is the continued confidence by the end user about the business justifications or rationale for this investment, which is the energy management, mitigating demand charges.
And there’s just continued, I don’t even want to say, excitement, but pressure from the end customer about this project. So we’re going to push through these UL issues. And it’s just been hard to get the timing right from a modeling perspective, but the momentum is still very much going forward.
Andy, is there anything on there?

Andrea Funk

I think you hit it. Again, we’ve been focusing on this initial launch customer, and that’s going to allow us really to develop our pipeline more when we have the systems installed. And it’s exciting.

David Shaffer

Brian, the installation went extremely well, they do. They pre wire everything at the CM. And so they just hoisted it right down and they had that big old system installed in four hours. It was really impressive.

Brian Drab

Okay. Thank you. And I guess you said it might change the modeling a little bit. If I’m looking at it, fiscal ’27 doesn’t seem that far away anymore. That’s basically calendar ’26. And I don’t want to put words in your mouth, but I would imagine it looks a little bit tougher to get to like a $400 million to $700 million revenue run rate with this product category (multiple speakers) or no.

David Shaffer

Brian, I think it’s just that these are start up issues and it’s the — I don’t think there’s an — we will certainly update models and let you folks know if we think there’s any sort of major departure. As far as I’m concerned, most of the issues we’re talking about today are related to getting these first 15 systems in the ground and up and running.

Andrea Funk

And the other thing I’d comment, Brian, is there’s growing enthusiasm across our other lines of businesses for things like [BEFF] systems and warehousing and Motive Power. So there’s plenty of opportunity. I think it’s just early ramp of a very large, complicated project that we’re excited. The installations went very well for the first one. Just gotta get the paperwork for the UL certification even though the tests are all done. We’ve got 15 locations that we’re ready to get the product installed in, and then the balance of those [15] systems as we talked about will follow after that.

Brian Drab

Okay, thanks. And then can you just put a little bit of a finer point on what you’re seeing in the communications market in telecom? Sounds like orders are picking up, and I might have missed the growth rate in orders maybe sequentially. If you could give us an idea how much orders improved sequentially or year over year.

David Shaffer

We’re definitely seeing a recovery in orders. And Andy —

Andrea Funk

Yeah. So revenue was down 10% year on year, but orders were up 30% year on year. If I look at comms in particular, Brian, you mentioned [America Coms] book-to-bill was 1.09 in Q2 of 2025. It was 0.57 in Q2 of ’24 to give you an idea. [0.09] last quarter as well, but that’s leaning into — on a sequential basis, going up 1.09 is the healthy increase.
So we’re mostly seeing it in network resilience. We’re not yet seeing as much of the network expansion. So I think we’re leaning into a return to normalcy on the base business. As we’ve talked about before, our target is to be at 8% to 10% during these down cycles when it’s really just resilient spending and 12% to 15% when it’s expansionary at the peak of these cycles, and 10% to 12% overall. So as things continue to return to a normal baseline, we expect to be in that range, that 8% to 10%, by the end of this fiscal year with upside opportunity as a lot of this expansion starts to kick in.

David Shaffer

And there’s certainly, Brian, with some pent up demand as it relates to the network resilience, we’ve said all along, you can only defer that for so long. And so that’s — but in terms of the big, new exciting projects, even though we’ve got several small cell area, we’ve got the advantage of having Shawn on the call with us today.
Shawn, is there any additional information you want to provide to Brian as it relates to some of the — not the network resilience projects, but maybe some of the new network expansion projects?

Shawn O’Connell

Sure, Dave, and good morning, Brian. There’s several sales in the wind that we have for network expansion. And as Dave mentioned earlier, these are in their early stages, but they’re good signs nonetheless.
And just to give you a little color, the first to be in our Hyperboost area. And we’ve socialized that previously, but we’ve been shipping, beginning in January of this year, a great deal of our Hyperboost modules, and this is allowing greater traffic to be handled by the antennas without climbing the tower. So doing doing power upgrades in the base stations. And we have about 4,000 Hyperboost modules and growing in our pipeline. So that’s the first. And as Dave mentioned, it’s not the next [G level] build if you will, but it’s a good building sign that some of this is coming back.
And then if you look at our DPX area, formerly called [touchsafe], we’ve completed our first right of way trial — public right of way trial for one of the major carriers small cells. That trial was in Dallas, Texas using the direct cable bury method, and went extremely well. We have two more trials in process at the moment, a small cell trial of a node on the East Coast, and then another one on the West Coast with about 15 nodes, both with different carriers, which is very encouraging for us. And we’re continuing to see excitement building around the specific use case of DPX in those applications. So we’ve got a stocking program we’re working on for our OEM partner. We’re getting them about 100 nodes now so they can have a rolling stock and begin to deploy more of these as the interest builds.
And then the final one I’ll talk about and really mention are our atom gateways. So our [Alpha docs] OEM module and gateway programs. So Charter and Comcast continue to deploy gateway-connected devices to support both the five [GCBRs] and wi-fi segments. And we’re seeing consistently building demand for the next year. And we’re continuing those deployments.
And then sort of as a sub segment of that, we’re seeing rural broadband beginning to really pick back up again. This was sort of shut off during the last part of last year when we saw the general order book decline, but we’re seeing several 1,000 new broadband powering systems being provisioned, which is largely going to build in the next calendar year.
So again, across the board, some good indications that some of these network builds are forthcoming.

Brian Drab

Yeah, there’s a lot going on. Thanks for sharing all that detail.

Operator

Chip Moore, ROTH Capital Partners.

Chip Moore

My congratulations, Shawn. Maybe just a follow up there on energy systems. Can you expand a bit more on what you’re seeing in the data center market?

Andrea Funk

Yes, sure. Happy to go. Data centers is a bright spot for us. Q2 was up high single digits year on year. And we do expect fiscal 25 to be up double digits. The orders are healthy. That strong year-on-year gains, particularly in Americas. America’s orders are up. And I almost hate to say it, 50% year on year, although these have long lead times. So the project nature tends to be these longer lead times, with new construction being much longer than the replacement.
The DC buildout’s facing extended lead times due to the power issues. Some of the critical components like transformers, the new utility build outs, and switch gear to bring the power to the DC can have lead times more than a year, and some components even as much as two to three years, which impacts the battery sales.
We’re doing builds going through calendar ’29 being planned. They’re much larger than the previous new installs, like a recent large order that we had was for 224 UPS systems versus, historically, a huge order with 10 to 15 UPS systems. So that’s what’s driving really this order book that’s going to be longer term in nature. This is one of the reasons why a mix of both doing replacements, which is more book and ship, as well as these project aspect of these new larger installs helps to balance some of the choppiness that you can have with this project activity. But we expect robust DC demand to continue with the multi-year trend.

David Shaffer

And I think longer term, Chip, it’s nice that we’ve got Shawn leaning in here because he has a lot of background in this particular area. And we’ve actually added some talent to the team recently with a lot of depth in data centers. And really my focus with Shawn over the next few months is we’re really looking at bolt-on acquisition opportunities in this space and certainly working with Joern, our CTO, on some new product opportunities in this area as well.
So it’s an exciting space and Shawn shares with me often some of the demand outlooks for electricity, mostly associated with artificial intelligence. And it’s staggering how much the availability of electricity is going to drive this market and, to Andy’s point, will create some choppiness in terms of when we see the orders which come sort of — we’re sort of the very last.
Shawn, you’d say we’re sort of the last thing that gets installed in the data center?

Shawn O’Connell

Yeah, we tend to be fairly down the line in that procurement cycle, long after transformers and those other [high-tent old] items made their way through.

David Shaffer

Okay, good. All right.

Chip Moore

Yeah, that’s very helpful. Can you give us any insight on, I guess, chemistry mix in that market or how you see chemistry mix shifting over time?

David Shaffer

Chip, lead’s really holding on. And I think TPPL is where we’re seeing the most interest and opportunity. Of course, on our NPI side, it’s mostly lithium. We’re looking at to fill in some of the gaps. It depends on every customer. But we haven’t seen the same maybe momentum across all elements of the data center space with lithium as we see in other markets. So it’s really mixed.
Shawn, Did I miss anything there?

Shawn O’Connell

No, Dave, I think you captured it well. And I think that TPPL portion is an important piece. If you look at it analogous to the Motive Power and what TPPL has done for price mix and Motive Power, we’re enjoying some of the same type of lift in in TPPL and data center. And Chip, if you think about it, it gets you a lot of the way of lithium TPPL, we’ve said in the past, without some of the risk.
And we’re still seeing some of the uglier stuff globally in data centers where we’ve had some fires and other things, not we as EnerSys, but the industry. And TPPL is really allaying that risk with much better performance characteristics. So our CAGR is really quite nice in that space.

Chip Moore

Great. That’s very helpful. Appreciate it. If I could sneak one more in just on Motive Power, staying very resilient, it sounds like. Just any more color — and I think you called out, I missed it, some dealer inventory dynamics. So just what’s going on there, and then how do you see where trend’s playing out to near term?

David Shaffer

I think most of the feedback we’re getting is not dissimilar from what we hear from the transportation group. There’s been a — I would say the economic activity over the past two quarters has been somewhat muted. I think that’s exacerbated some of these inventory positions. Most of the feedback I received, and I was just with a bunch of these folks not too long ago, is that I think some of the uncertainty related to the election. We’re going to clear that pretty quickly now. It feels like things are going to improve. And so I think a lot of the same dynamics.
But what we’re leaning into mostly with some of the choppiness and the volume is just been mix and just operating excellence. The factories have been doing a fantastic job aroumd time deliveries. So I’m just impressed as heck with that team, and we look forward to a bit smoothing out orders. As I noted in my prepared remarks, we’ve got some great indicators from some trade association data reports that we look at. And really for us, it’s just pushing maintenance free and technology and higher margin solutions into this market. And the team’s been doing a fantastic job.

Andrea Funk

I can follow up with some data as well. I want to stress again. This is a record second-quarter AOE for Motive Power and record AOE percent for the LOB. They just continue to knock it out of the park. And that’s on Q2, which tends to be our seasonally slow quarter with the holidays, so all the more impressive. One of our OEMS has projected some modest clients mostly in EMEA, but I think it’s important to remember that we sell both replacement and the OEM, and that our profit is improving despite the market being somewhat stagnant. And I think having a lot of opportunity for growth in front of it.
On a positive note, [ITA] July September lift truck orders were up 12% over prior year. And getting to some of this volatility that’s largely behind us, but I would say not 100% back to normal. So again, I think there’s a lot more growth in front of us. Our backlog is still about 50% higher than pre-pandemic levels. We exited Q2 ’25 with $286 million of Motive Power backlog versus $196 million Q2 of ’20. Our backlog coverage right now is 0.8 versus about 0.6 pre pandemic. Book to bill was 0.9 in both Q1 and Q2.
So you always wonder when it’s below one, what’s causing that. That’s because of a lot of this return to more of a book-and-ship type of an environment. Our orders in October — our strongest book to ship rate in 18 months is at around, I think it was around 35% or so. So there’s a little bit of that return to normalcy until we get a steady line. And I think the slope is going to continue to improve.

David Shaffer

One of our customers, Andy, on the [reach] trucks has still kind of really, I would say, abnormally long lead times, but the other major customer in that area has gotten sort of back to normal. So I think we’re almost through this disrupted phase and order rates is really starting to feel like it did in the old days, I guess, pre COVID.

Andrea Funk

Exactly.

Operator

Greg Lewis, BTIG.

Greg Lewis

Hey, thank you and good morning, everybody. And hey, Dave. Yeah, I’ll reiterate, everybody. I’ll say that thanks for all that you’ve helped me learn over the last couple of years. It’s really been great.
I was hoping to talk a little bit more around the Class 8 market and specialty. On the prepared remarks, it sounds like we’re kind of bottoming. Seems like it’s picking up. Just as we think about specialty margins which, hey, have been — are up sequentially and margins across the board are improving, kind of looking back and trying to see, how can we think about March and progression from this kind of mid single digits to that high single digit, low double digits that we saw a couple of years ago? How contingent on that is really that Class 8 recovery that we’re talking to versus maybe some other drivers that could see that those margins start getting back to that 10% range?

David Shaffer

Well, it’s a great question. As we said, the Class 8 situation was really sort of a slow down overall. But what really caught maybe our customers off guard was their level of inventory. So we saw a very abrupt reduction in order activity as a result. And I would say the inventory situation is improving. And again, similar to our comments earlier on Motive, I think in this post Election environment, we think the overall tonnage and — at least our customers are telling us that they expect that things are going to improve as we get through the uncertainties around this period.
And so the transportation elements are going to improve largely as that volume returns. And also as the new lines come up — ramp up in Springfield Plant 1, I think those are going to be the major drivers as we’ve modeled into our own forecast for the Board.
And then of course, just as a reminder, the other piece to specialty beyond transportation is the aerospace and defense. And we just see continued buoyancy in terms of that piece of the business. The macros are all favorable, Bren-Tronics is going extremely well to date. And so those are going to be the key drivers that margin progression.
Andy, any more detail?

Andrea Funk

I’ll add a little bit more to that too, Greg, and I’ll tell you what. I’m sure you’re disappointed, but we’re even more disappointed. Mark, especially. This is a great job running this business at the [0.8%] because we know just how much potential there is here. And we’re very confident that we’re going to be getting back at or near that double digit by the end of this year. And I’ll give you a little bit of feedback. As Dave mentioned, remember that it’s — specialty is made up of both the aerospace and defense, which we have a very healthy order book. And now adding Bren-Tronics which we only — keep in mind, this past quarter, was only a partial impact. So we’ll have, in addition to an accelerating business, full impact going forward. As well as the transportation. And remember that transportation is made up of both OEM and the aftermarket. So as we mentioned, after buy spot buys are growing. It’s plus 31%, but on a smaller base, it has trouble offsetting that 37% decline that we had in the OEM business. Year-to-date, we build about $20 million of inventory to be able to accept that aftermarket business.
As a reminder, we three Missouri plants, Warrensburg, Springfield 1 which is with Springfield 2. Both the Springfield plants we bought from the NorthStar Acquisitions. Plant 2 performance has turned the corner and is performing well, but to really see that financial impact, that both ES and specialty are absorbing from that under-absorption, we need more loading.
That loading, when it’s back at normalized levels, is probably about $10 million or $0.20 per share of opportunity. And we’ve talked about some of the growth in ES as well as this more aftermarket and then eventually the Class 8 coming back. But these two new lines, just to give you some perspective, it cost about $25 million. It’s part of the increase in our CapEx that we had this year. Most of that spending is behind us. These new lines will provide flexibility, incremental capacity, and lower cost. So as Dave mentioned, we’ll be able to produce 2x of volume with half the people. That give you some dimensions on that.
That revenue is about an incremental $150 million of revenue capacity. And the less cost is about $30 million less cost of $0.60 a share. Now that probably will take us two to three years max until those lines are installed, ’til we get the OEE at the level that we need and then we fill that capacity, but significant opportunities for improvement that will fall through to both ES and transportation over time. And that I think is really consistent with the story Patrice shared at our Investor Day.
Some of that capacity also is going to be used to meet the search and data center demand that we talked about before. So the timing of that installation is very well aligned. Again, we said it should largely be complete by the end of this fiscal year. And that’ll be lined well with DC growth, comps coming up, the incremental aftermarket, and then going into fiscal ’26 the resumption of the Class 8 OEM demand. So it’s not going to happen overnight, but we do expect ongoing incremental improvement in revenue, earnings, and OE percent in specialty as a result of this. And it’s really a great business.

Operator

Noah Kaye, Oppenheimer.

Noah Kaye

Dave, I wish you well in retirement. Thanks for all the dialogue over the years. And Shawn, a big congratulations to you and wish you luck. Let me start with the giga factory. We had a little bit of a political news in the last couple of days. At this point, just want to understand because I think with the outlook for tariffs and the implications for developing a strong domestic manufacturing base, I mean, the giga factory probably makes more sense than ever before from a strategic standpoint. But on the funding side and the development, just help us understand a little bit finer point what the schedule should look like here. How could this transition administration impact both the finalization and the timing on funding of the contract?

David Shaffer

We don’t anticipate any change with regards to timing or likelihood of the DoE award. And in terms of the schedule, Andy, you want to — you’ve got the timeline in front of you.

Andrea Funk

Yeah. Just to give you a little background on the schedule, Noah, we bought the Greenville land in Q1. That was about $10 million to get included in our CapEx numbers. The DoE negotiations are expected to be complete before January ’25. The team is doing an excellent job progressing there. This is largely administrative just so you know. I don’t want to give the impression that we’re negotiating whether we get it. It’s been approved, it’s been authorized. It’s just a question of some of the specific logistics behind it, some things like the environmental details for the land prep, making sure we’ve got everything in line with what their expectations are. So we don’t see that being at risk. We’ve already rented local space, beginning to hire staff. We had our Board meeting in Greenville just last week and everyone was thrilled with the economic development folks.

David Shaffer

Noah, if you haven’t been down there in a while, you need to. It’s a dynamic city. The Board was very happy and impressed with Greenville.

Andrea Funk

Yeah, as was I. I want to move there. We had to break ground in late calendar Q2 ’25, probably begin construction in third-quarter ’25. We expect the building to be commissioned at the end of calendar ’27. Obviously, there’s still a lot ongoing here and expect to start production Q2, Q3 of calendar ’28. We’re undergoing environmental site assessments. We’re doing material testing. So a lot of activity there. And we couldn’t be more excited. And don’t expect any changes on the progress. In fact, if anything, you mentioned a lot of the priorities of the administration, I think just to underscore the importance, and couldn’t be thrilled that Dave started it.

David Shaffer

I think you’ve alluded to, when you started, Noah, that there’s probably very few things that are agreed upon in DC these days. But one of those seems to be the importance of a domestic supply chain, especially for defense-related products. So it’s a huge priority for the current administration, and we anticipate that to continue as we transition.

Noah Kaye

Yeah, just a timing question as well. I guess as you go through and spend the CapEx on the plant, would the expectation be that the DoE and local cost share funds get dispersed to you more or less concurrently? Do you kind of net that out in terms of how you’re reporting CapEx? Or do you have to sort of take the growth CapEx number and net that back? Just how will that all work in terms of both timing of funding and then the accounting?

Andrea Funk

Yeah, and these are some of the items that are the — fine touches are being made during the negotiation. But we have — as I’m sure you know, Noah, you’ve got such a long history with us. Mark has a long experience in doing projects like this. Not this large, but with the government. And our expectation that we’ve modeled and that is consistent in the discussions we’ve been having with them is that it would likely be a reimbursement, probably on about a one quarter delay. So we’d have outlay and then we get reimbursement the second quarter when we’d be making additional investments going forward.
And also, what we’ve been able to confirm is the bulk of it would be booked as a reduction to the basis of the assets. So the capital spending would be net of that since a lot of it is based on, again, reimbursing of spending that has occurred. So that’s our current understanding. Again, all of that is being finalized in the negotiations.

Noah Kaye

Okay. Very helpful. And I guess just last one since I walked past an Odyssey battery lying out on my street this morning. I guess I got to ask about specialty. You provided a lot of color here on the organic trends. You also mentioned Bren-Tronics’ outperformance. It looks like on a partial quarter basis, about $16 million contribution to 2Q sales. You [quarterize] that and then annualize that, that’s kind of around $100 million, which it did last year. So just comment on any seasonality in that business and what you expect the business to do in sales this fiscal year.

Andrea Funk

We haven’t provided specifics on that. As you know, I think I mentioned, one of my roles is to be conservative. So obviously, this is a new business. Their orders have been fantastic. We’re very optimistic. But we’re sticking with what we know already that we’re building into the forecast conservatively about the run rate of where they were when we bought them. But we do see there’s upside potential from there. I don’t know if that helps. Hopefully, that’s close enough.
Obviously, we’ll be reporting Bren-Tronics revenue in our Q, so you’ll get exposure to an ongoing basis. But without a doubt, the team is phenomenal. Dave and I were there for their annual picnic. It was just a great culture, great environment. About half of the workers were wearing EnerSys t-shirts, which was really fun. The orders have been great. The synergies with EnerSys have been greater than we expected. We didn’t bake much synergies into the plan at all. It’s just been a great — going well. If I could do, I’d do more of these types of acquisitions all day if I could. The team’s been fantastic and they’ve been beating both their financial results so far and we have high expectations.

Operator

Greg Waskowski, Webber Research and Advisory, LLC.

Greg Wasikowski

Hey, good morning, everyone. I know we’re over on time already. So I’ll keep it brief. Just a follow up to the UL certification process, just for clarification? Is that a once and done kind of issue? Or does it vary by customer, geography, or product? What have you.

David Shaffer

The once and done kind of issue? So we have to get to the point where the contract manufacturer can mark the product with the UL cert. And part of our contractual requirements with our customers is to have that UL certification marked on the unit. So that’s just some of the steps we’ve been wrestling with on these initial units. But once we get this done, it’s done for everything. And the systems that we’ve been quoting to other customers besides landmark are the same unit essentially that we’re selling the landmark.
And as Andy mentioned, there is excitement building because the same fee structures that are driving the payback for our customer in Canada is demand charge, mitigation and energy management, energy arbitrage. Those same factors appeal to our our distribution center customers in California and other parts. So there’s a lot of momentum building in this new line of business.

Greg Wasikowski

Okay, great. That’s what I thought, good to confirm. That’s it for me. Thanks, and one last echo of congratulations to Dave and Shawn. Thank you.

Operator

This concludes the question-and-answer session. I would now like to turn it back to Dave Shaffer for closing remarks.

David Shaffer

Thank you, everybody, for joining us today and we look forward to speaking again in about 90 days. Take care.

Operator

Thank you for your participation in today’s conference. This does conclude the program. You may now disconnect.