EnerSys

NYSE:ENS

Earnings Call Analysis

EnerSys Shows Resilience Amid Market Headwinds

EnerSys reported first quarter net sales of $853 million, down 6% year-over-year, mainly due to lower volumes in key markets and price pressures. Despite these challenges, the company achieved an adjusted gross margin of 28%, bolstered by more than $30 million in IRA benefits. Adjusted EPS increased by 5% to $1.98. The Energy Systems segment saw a 15% revenue decline while Motive Power revenues rose 4%. The company updated its fiscal 2025 guidance to $3.775-$3.885 billion in net sales and adjusted diluted EPS of $8.80-$9.20, driven by anticipated improvements in demand and recent acquisitions.

Navigating Challenges with Resilience

In the first quarter of fiscal 2025, EnerSys faced a revenue decline of 6% year-over-year, totaling $853 million, driven by a 3% decrease in volume. This drop is attributed to temporary market headwinds in communications and Class 8 OEM markets, alongside 2% price/mix pressures. Despite these challenges, management emphasized maintaining disciplined operating expenses and price stickiness, which helped to mitigate the impacts of uneven demand across key end markets.

Segment Performance Overview

Segment-wise, EnerSys reported notable variances. Energy Systems revenue declined 15% year-over-year to $361 million, primarily due to lower volume and price mix pressures. However, adjusted operating earnings improved sequentially, showing the effectiveness of recent cost reduction initiatives, albeit still lower than the previous year. In contrast, the Motive Power segment experienced a 4% revenue increase, driven by strong demand, which contributed to a remarkable adjusted operating margin of 15.3%. Specialty revenue declined 6% amidst a softening in the Class 8 OEM market, reflecting ongoing seasonal adjustments.

Improving Margins Amidst Cost Improvements

EnerSys achieved a significant adjusted gross margin of 28% for the quarter, representing a 120 basis point increase year-over-year. This improvement was largely supported by benefits from innovative Inflation Reduction Act (IRA) credits. Adjusted operating margin was recorded at 12.4%, edged lower primarily due to volume declines. Operating earnings at $106 million were slightly lower than in the previous year. Management's focus on cost control and price/mix improvements provides a cautiously optimistic outlook for the future, particularly as demand signals begin to strengthen.

Positive Indicators for Second Half Growth

Management projects a recovery in the second half of fiscal 2025, driven by expected improvements in North American communications spending and a rebound in Class 8 transportation volumes. The anticipated growth is expected to contribute significantly, with a full-year revenue guidance range increased to $3.775 billion to $3.885 billion, up from earlier ranges. Adjusted diluted EPS is now forecasted to fall between $8.80 and $9.20 per share. The company also signals confidence in the operational efficiency gains from the Bren-Tronics acquisition, which is expected to enhance growth and margins.

Cash Flow Considerations and Capital Allocation

Cash flow saw a positive uptick to $10 million, notwithstanding challenges related to typical year-end payouts and elevated capital expenditures. The company has planned CapEx between $100 million to $120 million for the full year, without including significant spending for their new lithium plant project currently in development. EnerSys holds a solid cash position of $344 million and is strategically positioned to pursue growth opportunities while maintaining a strong balance sheet.

Dividend Strategy and Shareholder Commitment

EnerSys reaffirmed its commitment to shareholder returns with a dividend increase to $0.24 per share, up from $0.225, underlining a disciplined approach to capital allocation. The company is diligently searching for additional strategic acquisition opportunities similar to Bren-Tronics, which aligns with its growth strategy in energy solutions.

Earnings Call Transcript 2025-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Q1 2025 EnerSys Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lisa Hartman, VP of Investor Relations.

[Lisa Hartman, executive]

Good morning, everyone. Thank you for joining us to discuss EnerSys First quarter fiscal 2025 results. On the call with me today are David Shaffer, EnerSys President and Chief Executive Officer; and Andrea Funk, EnerSys' Executive Vice President and Chief Financial Officer. Last evening, we published our first quarter 2025 results and filed our 10-Q 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 that could affect our future results, please refer to our recent 10-K filed with the SEC. In addition, we will be presenting certain non-GAAP financial measures, particularly concerning our adjusted consolidated operating earnings performance, 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-K, which includes our press release dated August 7, 2024.

And with that, I will turn the call over to Dave.

[David Shaffer, executive]

Thank you, Lisa, and good morning. Please turn to Slide 4. In the first quarter of our new fiscal year, we delivered EPS at the midpoint and revenue slightly below the low end of our guidance range. Our balanced business portfolio, price stickiness and disciplined OpEx spending is helping to mitigate uneven demand across key end markets. Gross margin was 28%, and adjusted operating earnings were slightly lower than the prior year due to net volumes and mix headwinds, which were largely offset by cost improvements and increased IRA benefits.

The current macro environment has influenced several of our customers towards more cautious spending patterns, which has created pockets of order delays for us, but we are not experiencing cancellations. Although some of the first quarter's market headwinds are expected to persist into our second quarter, we see promising demand indicators and positive momentum across our business for the second half of the fiscal year. We remain focused on what we can control, driving price/mix improvements, optimizing our cost structure to flex through cycles, improving productivity through automation and flexibility and advancing our transformative strategic priorities, such as our planned domestic lithium plant, our new fast charge and storage business and accretive bolt-on acquisitions like Bren-Tronics.

Positive demand signals and opportunities, combined with focused execution gives us optimism in our ability to deliver our full year financial projections. While overall orders were down slightly year-over-year, order rates improved over the course of the quarter. The quality of our backlog is healthy with the first sequential increase in Energy Systems backlog in 8 quarters, offset by seasonal declines in Motive Power and Specialty.

Andy will give detail on our first quarter fiscal '25 performance and outlook, but I will first provide a few more highlights and business drivers behind the results. In Energy Systems, sales were down compared to prior Q1, driven by declines in communications, partially offset by robust data center demand, where we see ongoing opportunities with our high discharge energy storage data center solutions.

We believe our communications customers have more than worked through our inventory surpluses and the deferred spending that is occurring is unsustainable to maintain network resiliency. We believe this has created pent-up demand that we expect will begin to materialize throughout this fiscal year with a pickup in quarter end orders pointing to the beginning of a recovery now being underway.

In the quarter, Energy Systems achieved $7 million of sequential cost savings as a result of the significant cost improvement actions we implemented over the past 2 quarters. However, these savings were masked by lower sales with a weaker product mix, particularly from delayed customer spending on high-margin power electronics. As a result, we only saw a modest sequential improvement flow through to adjusted operating earnings in Q1. We expect full visibility of these actions in the second quarter as volumes begin to pick up. We also conducted another round of price increases across the business, reset contracts and adjusted tier pricing to contractors.

Q1 book-to-bill and Energy Systems was favorable at greater than 1, driven by North America communications at 1.09. We exited the quarter seeing encouraging order trends in telco, but expect broadband recovery to be second half fiscal '25 story based on current backlog orders and project flows. Motive Power was a bright spot, with volumes and margins increasing versus the prior year, driven by consistent customer demand in logistics and warehousing and continued customer enthusiasm over our higher-margin proprietary maintenance-free offerings. Customers are adopting our higher energy dense solutions that provide them with longer-term cost savings through operational efficiency, lower labor costs and lower water and energy usage compared to traditional batteries and chargers.

Our maintenance-free solutions have grown to 24% of total Motive Power sales in Q1 versus 19% in the prior year. Industry data supports our expectations of mid- and long-term expansion. For example, a leading industry association's confidence index shows current conditions during the second quarter of 2024 improved versus last quarter, and the future conditions index grew well above the threshold indicative of expansionary conditions. Our backlog remains well above pre-pandemic levels, although we saw a slight reduction in backlog with book-to-bill at 0.9 on summer month seasonality and some advanced orders in Q4 after an announced price increase.

In specialty, revenue and adjusted operating earnings in the quarter were down with performance impacted by a dramatic softening of activity in the broader Class 8 truck OEM market, not specific to EnerSys. Our customers, both OEM and fleets are indicating that volume should increase in the back half of our fiscal year as shipping tonnage rebounds in the California Air Resources Board, CARP27 deadline approaches. Aerospace and defense demand remains strong with a solid order backlog and several aerospace and defense opportunities in the pipeline. Our A&D business will, of course, be further bolstered by our recently closed acquisition of Bren-Tronics.

Adjusted operating earnings were impacted by the drop in Class 8 OEM volumes and increased costs related to underabsorption in our plants, also resulting from the lower communications and transportation volumes. Despite the timing of the resumption of Class 8 orders, we have a significant opportunity in front of us with transportation through our trucking aftermarket channels in the premium automotive market with our retail and aftermarket partners. We are actively working with these customers and building the necessary inventory to achieve the required service levels with the appropriate product mix which will enable us to accept higher margin business. We expect this ramp to begin in the second half of our fiscal year.

As discussed last quarter, our Missouri plant output is improving, and we will begin to install new lines that will afford us increased and more flexible production capacity in the fall. The incremental volume with better cost absorption will further drive earnings expansions on top of the accretive impact of Bren-Tronics. In our new ventures line of business, we are in the final testing phase of our first commercial-ready fast charger storage system, which we are prepping for delivery to our launch customer site in Canada in the coming weeks.

Please turn to Slide 5. The team is making exciting progress on our strategic priorities. Let me share some of the highlights from our first quarter. Starting with Innovate. In our Motive Power products, we are preparing to launch our NexSys 48-volt heavy-duty lithium batteries, and we received our first order for 2 units. We also received our first orders for 22 NexSys outdoor chargers this quarter. This product has the opportunity to be a game changer as customers convert from internal combustion to electric lift trucks in outdoor applications with regulations such as CARB, which aim to phase out gas powered forklifts in favor of 0 emission technologies, the shift to electric forklifts is becoming increasingly significant.

In Energy Systems, our DPX outdoor fault managed power supply received a critical UL certification, and we are leading the industry by being the first company to receive certification for a Class IV outside plant solution. We continue to focus on optimizing the business as well. As we mentioned last quarter, we have taken specific actions to improve performance and efficiency, particularly in Energy Systems. We have optimized our footprint and organization, conducted targeted restructuring, invested in high-speed flexible production capacity and streamlined our operations.

We are continuing to advance on our TPPL manufacturing flexibility initiatives in Missouri, yielding further productivity improvements in the quarter and are focused on scrap rates, assembly performance and SIOP execution, driving a nearly $100 million reduction in inventory versus prior year on top of operational cost improvements. Our investments in production flexibility remain on track for completion in the second half of the fiscal year and accelerating. We continue to advance on the development of our lithium-ion cell gigafactory. We're formalizing our collaborative relationship with Verkor, taking investments to support their growth and progressing on the key agreements which will support our factory operations.

We recently met with the U.S. Department of Energy to review our application for additional funding for our plant. We look forward to learning the results of these funding allocations, which are expected to be announced in the coming weeks. At that point, we will share with you the full project budget and timeline. We've updated our model to include the recent tariff announcements, which has further solidified our make versus buy justification.

Please turn to Slide 6. On July 26, we were pleased to announce closing of our acquisition of Bren-Tronics and to welcome the team into EnerSys. This acquisition, which expands our presence in critical defense applications, broadens our lithium product offerings, strengthens our product development capabilities, provides incremental growth opportunities and is immediately accretive to earnings. As previously disclosed in calendar year 2023, Bren-Tronics generated approximately $100 million of sales with EBITDA margins around 25%. We're implementing a detailed integration plan that has been developed over the past several months with a dedicated cross-functional team from both EnerSys and Bren-Tronics. Our priority is to ensure minimal disruption commercially and operationally while we rapidly execute corporate and back-office integration.

Please turn to Slide 7. On the governance front, last week, we held our Annual Shareholder Meeting where our stockholders elected 2 new members of our Board, Mr. David Habiger and Ms. Lauren Knausenberger. David is the CEO of J.D. Power, a provider of data analytics, software and consumer intelligence. David has a demonstrated history of driving change within industry-led security protocols globally. Lauren is the Executive VP and Chief Innovation Officer at SAIC, a provider of engineering, digital, artificial intelligence and mission solutions across the defense, space, civilian and intelligence markets. Lauren is a globally recognized thought leader and change agent in technology, digital modernization and cybersecurity. I am pleased to welcome David and Lauren to our Board of Directors, whose expertise and skill sets are well matched to our industrial technology transformation. It is with sincere thanks and deep gratitude that we say farewell to long-standing Board members, Art Katsaros, our Chairman for the past 8 years, General Robert Magnus in Wansheng. We truly appreciate their commitment in 53 collective years of dedicated service, and we congratulate Paul Tufano, our new Board Chair.

I will now turn it over to Andy to take you through our results and outlook in greater detail. Andy?

[Andrea Funk, executive]

Thanks, Dave. Please turn to Slide 9. First quarter net sales of $853 million were down 6% from prior year, driven by a 3% decrease in volume due to the temporary market headwinds in communications and Class 8 OEM markets that Dave discussed as well as 2% price/mix pressure from lower proportionate sales of higher-margin power electronics and an FX headwind of 1%. We achieved adjusted gross profit of $238 million, down $5 million year-on-year, including a little over $30 million of IRA benefits booked as a reduction of cost of goods sold in the quarter.

Q1 adjusted gross margin improved by 120 basis points versus prior year to 28% due to higher IRA benefits. As you may recall, in the third quarter of fiscal year 2024, we validated an expansion of our batteries that qualify for IRA credits. Excluding the IRA benefits, adjusted gross margin was down a little over 50 basis points year-over-year due to the impact of lower proportionate power electronic sales that I just mentioned.

Our adjusted operating earnings were $106 million in the quarter, slightly lower than in the prior year, with an adjusted operating margin of 12.4%. Excluding the IRA benefits, adjusted operating margin declined a little over 100 basis points year-on-year. This decline is attributable to the temporary softness in the communications and Class 8 OEM end markets, net of cost improvements, Dave mentioned earlier. Adjusted EBITDA was $121 million, a slight decrease of approximately $1 million versus prior year, while adjusted EBITDA margin was 14.2%, up 70 basis points versus prior year on the expanded IRA benefits.

In line with our guidance range, adjusted EPS for the first quarter was $1.98 per share, an increase of 5% over prior year. Excluding the IRA benefits, adjusted EPS was down over 15% versus the prior year. In the first quarter of fiscal 2025, our effected tax rate was 11.6% on an as-reported basis, and 20.8% on an as adjusted basis before the benefit of the IRA compared to 17.6% in Q1 '24.

Let me now provide details by segment. Please turn to Slide 10. In the first quarter, Energy Systems revenue declined 15% from prior year to $361 million, primarily driven by the lower volume and price mix pressure previously mentioned on top of FX headwind. Adjusted operating earnings of $19 million improved sequentially on lower revenue as we saw the benefits of our cost reduction efforts, but were $11 million lower than prior year on the soft market conditions. Adjusted operating margin of 5.3% was up 60 basis points sequentially, but decreased 170 basis points versus the prior year. We are beginning to see favorable signals in key energy systems end markets with increasing order trends giving us optimism for sequential improvement throughout the end of the fiscal year.

Please turn to Slide 11. Versus prior year, Motive Power revenues increased 4% to $366 million on a 6% volume increase, partially offset by price mix and FX. The reduction in price mix is due to the elimination of the 0-margin utility adder that was in place last fiscal year when European utility costs have spiked. Motive Power again reported strong adjusted operating earnings this quarter, contributing $56 million, up 11% over prior year. Adjusted operating margins were near record highs at 15.3%, up 90 basis points versus Q1 '24. Despite mixed macro signals, we remain optimistic about the growth opportunities in Motive Power as we introduce new customer solutions, the overall demand trends remain healthy, and our proprietary maintenance-free products continue to support our customers' growing needs for automation, electrification and decarbonization solutions.

Please turn to Slide 12. Specialty revenue decreased 6% from prior year to $126 million on 3% lower volume and a 3% reduction in price mix. Q1 '25 adjusted operating earnings of $4.9 million were half of prior year's AOE with adjusted operating margin of 3.9%, down 350 basis points. As Dave mentioned, margins in this business were pressured by the impact of lower Class 8 OEM transportation volumes and the impact of under absorption in our Missouri plants. We made progress in our Missouri factory operations performance during the quarter and have line of sight to continued improvement this fiscal year, which will be more visible when communications and transportation volumes pick up and we're able to enjoy better absorption of our plant overhead costs.

Although Class 8 OEM transportation demand weakened this quarter, given the significant incremental transportation aftermarket opportunities and broad strength of A&D end markets, combined with the enhanced high-speed flexible capacity expansion we anticipate in the coming quarters. We remain optimistic about our opportunities in specialty. On July 26, we closed on the acquisition of Bren-Tronics, which is adding profitable growth to our existing business, and we will discuss the impact of the acquisition further as part of our guidance.

Please turn to Slide 13. Operating cash flow in the quarter was a positive $10 million with primary operating capital increasing slightly on transportation inventory builds to prepare us to take on aftermarket demand in the second half of the year. Receivables were again a positive as we focus on collections. Operating cash flow also absorbed normal year-end variable compensation, rebates and incentives payout as is typical in our first fiscal quarter. As noted last quarter, the full benefit of the IRA credits will not have the full positive impact on our cash flow until our fiscal year 2024 tax filings are finalized, and we receive our first 45x expected tax refund from the IRA of approximately $100 million near the end of fiscal 2025.

Lower operating cash flow from typical year-end payouts and delayed IRA monetization, combined with elevated CapEx of $36 million, including approximately $9 million from the purchase of land in South Carolina for our planned lithium plant resulted in negative adjusted free cash flow conversion during the quarter. As of June 30, 2024, we had $344 million of cash and cash equivalents, and our net debt of $565 million represented a reduction of approximately $125 million from prior year. Our credit agreement leverage ratio was 1.1x EBITDA. Our balance sheet remains strong and positions us to invest in growth and navigate the current economic environment. Note that although we incurred approximately $200 million of cash outlay for the Bren-Tronics acquisition in the second quarter, we anticipate our net leverage will remain well below the low end of our 2x to 3x target range, providing us with ample dry powder for our capital allocation decision.

Please turn to Slide 14. During the first quarter, we paid $9 million in dividends and repurchased approximately $12 million in shares. We currently have approximately $121 million remaining in our buyback authorization. During the quarter, we funded our investment of $11 million in Verkor series c round and made our initial milestone payment for our prototype agreement in July. We continue to screen for additional attractive bolt-on acquisition opportunities like Bren-Tronics, which meet our disciplined strategic and financial criteria.

Please turn to Slide 15. Our Board of Directors recently approved an increase in our quarterly dividend to $0.24 per share, up from $0.225 per share. As part of our disciplined capital allocation strategy, we are committed to a competitive dividend that grows with earnings excluding IRA benefits over time. We have ample room in our balance sheet to remain flexible to meet our business needs, and we will continue to allocate capital with the goal of delivering optimal returns to our shareholders.

Please turn to Slide 16. We remain optimistic about the trajectory of our business and are particularly pleased with our continued ability to maintain pricing. While mixed market dynamics remain, we are seeing positive demand indicators and are pursuing incremental market opportunities. In addition, we have taken substantial actions to improve our overall margin profile and are beginning to see the benefits of these actions in our financial results.

As a result, we remain cautiously optimistic in our fiscal year 2025 financial targets and are increasing the midpoint of our full year fiscal 2025 revenue guidance by $60 million and our full year fiscal 2025 adjusted diluted earnings per share guidance by $0.25 per share to include the incremental benefits of our acquisition of Bren-Tronics on top of the base business expectations that were in our previous guidance.

Our fiscal second quarter 2025 guidance range is $880 million to $920 million of net sales with adjusted diluted EPS of $2.05 to $2.15 per share. Our guidance anticipates a modest sequential improvement in North America communications spending in Energy Systems, modest transportation aftermarket growth in specialty and incremental revenue and earnings from Bren-Tronics.

Our fiscal year 2025 guidance range is now $3.775 billion to $3.885 billion of net sales, up from prior guidance of $3.675 billion to $3.825 billion. Adjusted diluted EPS is now $8.80 to $9.20 per share, up from prior guidance of $8.55 to $8.95 per share and with the pretax -- pre IRA tax rate of 20% to 21%. Our CapEx expectation for the full year fiscal 2025 remains in the range of $100 million to $120 million. This does not reflect significant additional spending on our planned domestic lithium plant. We plan to provide an update on the status of the plant and impact to our fiscal '25 expectations later this quarter.

In summary, we are confident that the foundation we have put in place, coupled with the investments we have made in our transformation will deliver accelerating financial returns. The global concern over energy scarcity will persist as major trends drive a swift rise in the demand for reliable power. As a key provider of energy systems and storage solutions, EnerSys is well-positioned to take advantage of this growth opportunity. We remain focused on delivering long-term value to our stockholders. With this, let's open it up for questions.

[Operator]

Thank you. At this time, I will come back to the question-and-answer session. [Operator Instructions]. Our first question comes from the line of Noah Kaye of Oppenheimer & Company.

[Noah Kaye, analyst]

I hope everyone is doing well, and we continue to appreciate the full year guidance. And I have a related question to that. Just around the back half growth expectations. Andy, I think you were going through some of it in the assumptions on Slide 16. But at the midpoint of guide, it's roughly a $300 million step-up in revenue from the first half to the second half. And just curious to understand how you think about bridging that. We should have something like, I guess, a $25 million tailwind first half versus second half from Bren-Tronics, right, having that for the full half, maybe some [indiscernible] revenues. But what are the main drivers to consider that drive that step up? It sounds like a lot of it might come in specialty.

[David Shaffer, executive]

Well, that's some of it, Noah, this is David. I would say it's ES recovery, certainly is part of that. And I'll let Andy kind of add some dimensions here in a minute as she gets organized, the specialty piece and then continued stability in our Motive Power business is really are the main pieces that buttress that. But Andy, do you want to mention that, for Noah?

[Andrea Funk, executive]

Yes. Nice to hear your voice. Well, we carved out the Bren-Tronics separately, so you do see -- and really, if I want to go through each one of the lines of business, I'll give you a little bit of color. Energy Systems, we see increasing demand throughout the balance of the year. It's going to be driven by improvements in wireless that we're seeing mostly and some further margin expansion from power electronics as well as strength in data centers. So that's slow and steady, similar to last quarter, except that we are now seeing the robustness coming in, in the order book where we hadn't been seeing that previously.

In Motive Power, we'll have the normal second quarter seasonality pressure, particularly in EMEA on the holidays, but we are seeing some strong order and quote activity, which gives us optimism. We expect to continue to benefit from the Motive Power conversions and some NPIs like wireless and outdoor chargers. But the lithium add-on will show a little bit of exaggerated volume and some pressure on price/mix.

In specialty, second quarter is seasonally lower. We'll benefit from about 1 month of the accretive impact of Bren-Tronics. We cautiously building that in because, obviously, there's some transition-related activity that will happen when you first bring them into our fold, but things are going really well there. We don't see material growth in the aftermarket or premium auto picking up until the second half. Industry data and some customer feedback, the upcoming CARB regulations that Dave mentioned, they all give us optimism that the Class 8 OEM pause is temporary, but we do believe we'll be able to take on additional aftermarket volume where we've got the right inventory on the shelf and when our Missouri plant expansion is complete, which is really a second half of the year story.

The additional capacity is going to give us flexibility at lower costs through automation and enable better full-plant cost absorption, but that's really going to be late in this fiscal year. We expect some fast charge and storage incremental revenue and to get some OpEx leverage with mostly on those aggressive actions that Shawn took in place but offset by some of the fast charging storage additional spending as we ramp.

IRA remains $120 million to $160 million per year. And as we mentioned, tax rates, little bit higher, 20% to 21%, in line with Q1 but higher than fiscal '24 on discrete, geography of earnings and really the impact of the global minimum tax. I hope that helps.

[Noah Kaye, analyst]

Maybe just a bit more color on where within ES, you're seeing that pickup in orders. You mentioned wireless, but wondering if it's primarily kind of the traditional macro base station type powering opportunity, anything in small cell. Just sort of characterize it. And you pointed out, I think, a couple of times in the prepared remarks and even just now when you get the power electronics coming back in, really, really strong leverage expected on that. Is that mostly a back half story in your view?

[David Shaffer, executive]

Great. I would say let's talk about it in a little different slice. Really, whether it's hybrid fiber coaxial networks or wireless networks, the things that we see is there's network expansion, projects and investment opportunities and then there's network resiliency investments. What we're seeing come back across both sides, wireless and the HFC networks is the resiliency spending. That -- we noted to you that you can only defer that for so long. And so that's the first piece to have come back. I would say wireless resiliency has come back first. We're starting to see some really good momentum building in the HFC network resiliency investments. And then in terms of the projects and the capacity expansions, we have ongoing dialogues in private networks, small cell projects, any number of projects, but that is the piece that really has acutely slowed down relative to kind of that momentum we had during a year or so ago.

But the resiliency piece, which, again, similar to Motive Power, it's a replacement. It's -- it really helps to buttress us when the expansion and the new activity slows down a little bit. So that's where it's come back the most. And then in terms of small cell projects, lot of dialogue, but no real revenue drivers for me to talk to you about yet, but certainly, many projects have foot.

[Andrea Funk, executive]

Yes. Noah, I can add a little bit more color. This was the first time that our backlog increased in 8 quarters. We -- America Telco broadband book-to-bill was 1.09 in the quarter. Our July book-to-bill in America was 1.1. So last quarter, we said this was kind of the wildcard. And still the pace of the recovery is a little uncertain. But we said last quarter, we weren't seeing in our order book. Right now, we are starting to see it in our order book. So we're cautiously optimistic. Very proud of the aggressive bold actions that Shawn took improve the overall margin of ES, both in the peaks and valleys. And we feel very confident that we're going to be getting to 8% to 10% in the down cycle, not quite there yet, but we're confident that's in reach.

And you know, even on $8 million drop in revenue sequentially, we did have a 60 bp improvement. We're a little disappointed. You didn't see the full $7 million cost improvements because it was masked with the volume recovery and further mix pressure. But just to give you a perspective, as Dave's mentioning, Xm orders in the month of July were higher than the entire Q1. Xm, as you know, are one of our proprietary power electronics products. Q1 represented the lowest revenue of these products in 8 years, so even before the Alpha acquisition. This wasn't just, I would say, the low end of the cycle, this was -- we really believe this was the trough.

[David Shaffer, executive]

And I think that, again, gets into that resiliency investment we're talking about, and these kind of expenses can only be deferred for so long. It's a perfect example. And I would say in our Q1, that's probably the piece that surprised us the most given, as Andy just noted, when we build our forecast out, that was the lowest revenue on that SKU in 8 years. I mean it was a crazy quarter in that sense. But you can only defer this for so long. The outlook has improved dramatically, and we're cautiously optimistic about the second half.

[Noah Kaye, analyst]

Really appreciate the detail and transparency here. I'll take all my additional questions off-line.

[Operator]

The question for our next speakers -- sorry, next question is going to be for Greg Lewis from BTIG.

[Gregory Lewis, analyst]

Andy, when you kind of -- just real quick on the guidance. I think in your prepared remarks, you talked a little bit about maybe opportunities in North America in Motive and Energy Systems to kind of recover here in the second half. Any kind of -- as we think about the guidance in any way or how should we be thinking about the kind of the trajectories in Asia and Europe? Is that similar? Or do we have kind of a different macro outlook for those 2 areas?

[David Shaffer, executive]

Greg, this is -- I'll start and let Andy get a little organized here. But in terms of the regional look, I would say that Asia and Europe have been a better news story the last couple of quarters, and we've seen some stability in both those regions. And the outlook, I guess, for Asia is pretty good based on some of the numbers I've seen. For us, as you know, that it's really not big enough to drive major changes in the overall performance of the business. But I would say there's regional stability. It's the Americas piece that was probably a little bit slower. But as it relates to Motive specifically, I would say the feedback we're getting from both our channel and our sales folks is continued to be positive. And a lot of the electrification projects that are afoot. We mentioned the new outdoor chargers, which allows us to push electric fork trucks even into new different applications. These are a lot of the key momentums that we're building and, of course, the maintenance-free conversions. Andy?

[Andrea Funk, executive]

Yes, I can give you a little bit more color just by geography, if that's helpful, Greg, and nice to hear your voice as well. In -- we typically, in EMEA, have a little bit of a step back going into the second quarter, as you know, on the summer holidays. But if I look year-on-year, there's a little bit of top line growth. We took out the utility adder that we mentioned. But from a profitability standpoint, they're more than 2x of their operating earnings that they were. So doing really well there. I think Chad is doing a lot of things on his Motive Power value selling that we've done in the Americas, bringing that into rest of world. And Shawn, certainly looking at kind of globalization of ways that we can look at things like data centers globally and telecom customers taking similar approaches and similar sales strategies.

APAC tends to be a smaller region for us, but we've really focused there on derisking and finding ways that we can use our plant to benefit like in-region sourcing. And so it's overall going well. Americas tends to be our biggest piece of the business. That's why we focus on that and certainly the most profitable.

[Gregory Lewis, analyst]

No, no doubt. And then I did want to touch on data centers. I mean, clearly, there's a data center mega trend happening. E&S has kind of always provided backup power to data centers. I guess what I'm trying to figure out is, it's in the news a lot. These are multiyear projects. And so I guess what I'm kind of curious about is as E&S has been booking data center work for the last -- I don't know how we -- a couple of quarters, I don't know if you can talk about it a year or a couple of quarters, however you want to kind of frame it up here. Could you talk about maybe that rate of change now? And then if I'm building a data center and I'm talking to E&S in the summer of 2024 for an opportunity like that, when does E&S really start realizing revenue from that data center contract that you win to provide power in, I guess, in Q3 of '24?

[David Shaffer, executive]

Right. Well, at a high level, data centers is obviously a great market for us, and it crosses both our traditional product ranges as well as into our TPPL range. And the -- I would say, and it varies, Greg, by product type. But I would say that -- my best guess is that we have about a 6-month notice at best when it comes to a new opportunity. So I can -- and I'll have Lisa or Charlotte circle back with you after right -- We'll talk to Shawn and make sure that, that is the right number. But when I was back doing that, it's been a few years, it was about a 6-month heads up. We -- you would start to see it in our order book. And then depending on the product type, maybe a 6- to 8-week lead time after that. So that's sort of that advanced -- that's about advanced notice as we would probably see. And I know there's been in the news, and we're getting feedback from our customers, there's tons of growth and opportunities.

There's been some supply chain issues, not with batteries or not necessarily EnerSys. But just in general, there's been some projects that we've heard about that are getting delayed for various construction regions or architectural steel. So it's never smooth. It's -- there's always a little bit of choppiness in any quarters. But the key underlying demand drivers for data centers continues to be a very, very big bright spot for us. Historically, though, -- it's just the revenue-wise, it's not been -- it wasn't big enough to offset the slowdown we saw in the communications piece. But it's been a very good growth story for us.

[Andrea Funk, executive]

Yes. And Greg, just to provide a little color. Q1 was up about 5% in data centers. And I think we've got a little more opportunity that our full year, we're projecting to be up double digits, well over double digits. And keep in mind, there's a few things. So our batteries are the last items to be purchased for the new data center. So there's a little bit of this delay as Dave was mentioning, but it's a great product. We're continuing to look at both NPIs as well as potential bolt-on acquisitions, considering the valuations, making sure that we're not buying at the peak.

But on top of that, just this explosive AI and data center growth impacts our communications market, the last mile delivery, we know that's going to impact that network resiliency and build-out that Dave spoke about and also grid pressure, which provides more of an opportunity in the future for our BESS and our new ventures land business and the importance of that. So this kind of is a whole story of EnerSys and why we're so well positioned for the long term.

[David Shaffer, executive]

And Greg, I don't know if you started using this AI, some of these products, but it's mind knowing what it can do. it really -- it's a little frightening, but it's really exciting.

[Gregory Lewis, analyst]

No doubt. Thank you for the time. Have a great day.

[Operator]

[Operator Instructions]. The next question that we have comes from the line of Brian Drab from William and Blair.

[Brian Drab, analyst]

I just wanted to see if we could talk a little bit more about the lithium business, the lithium plant, and I'm just thinking about the timing of some of these things. So I know that you've got this exciting opportunity in the fast charging and storage, hoping to get that business into the $400 million to $700 million revenue range by fiscal '27, which is basically calendar '26, which is really not that far away all of a sudden. And how do you think about getting the lithium cells that you need for that opportunity, building this lithium plant? You've also got these lithium-ion cell tariffs that are increasing 25% in 2026. I was wondering, Dave, if you could just go through like some of the planning steps and the timeline and talk about the risks to getting up to volume production when you want to.

[David Shaffer, executive]

Right. Well, the key for us and what we've tried to do is to do as much as we can to hit the starting line at full speed. So that's been the intense focus without overly committing anything until we have the final look as to what we think potentially a grant from the Department of Energy would contribute to the business plan. So that's why we haven't given you more detail yet as we wait to see how that's going to work out. But -- and Andy mentioned that we bought some land down in Greenville, South Carolina. We've been working very hard with Verkor on the new prototype line for the Grenoble factory to get everything running and debug there for our particular cell design.

The engineers have been very, very busy. We've done the environmental site assessments. We've gone out, we've hired or identified general contractors, architects, environmental support companies. Andy and I were in D.C. in July. We had a very productive meeting with the Department of Energy, and we hope to hear something in the coming weeks. And -- so we're doing as much as we can without -- as we prepare, we started to staff some leadership -- key leadership positions. We brought in a leader who's had experience both in Europe and in South Carolina, a specific experience building lithium-ion factories.

So we've been very, very busy. And then in terms of the timeline and Andy, do you want to kind of give some of the dimensions on spending and timelines?

[Andrea Funk, executive]

Yes. I'd say, Brian, you brought up a really important point. The tariffs and other model assumptions, but the 25% tariffs coming out of China. We factored that into our model. We're working with the strategy group out of Europe, who's done other lithium plant start-ups to really tighten and refine our model, and it's becoming all that more exciting and compelling that this is -- this looks like a really good opportunity for EnerSys.

I think one of the things we're considering is if we're fortunate enough to get the -- to be a steward of the DOE's investment, we would make adjustments to the plant to be able to meet their requirements. And if we don't, we probably have to make adjustments so that it would -- we wouldn't have to incur those extra costs. So that's what we're really assessing. And our goal is, as soon as we find out whether we get this grant that we would provide timelines and budgets and share with everyone. We're very excited about what this opportunity is.

And you're right, a big chunk -- the difference for us versus other lithium plant start-ups, and I think you're aware of this, but perhaps other new investors to our story might not be. We don't need aggressive off-take agreements. We will be our only customer of the output with fast charge and storage would be a big portion of where some of the lithium cells would go.

[David Shaffer, executive]

Right. But there's plenty of new products. There's product cannibalization. There's ample opportunities to load the factory. We've just been a little hesitant to outline the final budget and timing, as Andy noted, until we know the full scope of what the requirements are for the DOE grant. And once that's ironed out, then we will -- and I think we're weeks away.

[Brian Drab, analyst]

Okay. Okay. And I'll just ask one more small question for right now. I just want to ask a point of clarity on the guidance. So the $60 million increase in revenue, is that specifically and only associated with Bren-Tronics? because I'm just thinking about, you know, Bren-Tronics was $100 million in revenue approximately in 2023. And if I do $60 million, and it's going to contribute for 8 months, it seems to imply that Bren-Tronics revenue would be like $90 million in this fiscal year. And just wondering if there's an explanation of that discrepancy or Bren-Tronics revenue is down a little? Or any thoughts there?

[Andrea Funk, executive]

Yes. No, we're very excited about Bren-Tronics. As you can imagine, part of mirin is to make sure we're conservative when there's uncertainty. So it's a new company. We kind of discounted June -- July and August, we bought it mid-July -- end of July, and we discounted August because there's a transition with any acquisition, there's usually a little bit of pull-in. We had a full week for the physical inventory, the first time they had done a physical inventory went extremely well. The culture, the management team, the mindset, the results were all very strong. But you never know fully, and so we've intentionally been a little bit on the conservative side.

There's a little bit of seasonality as well. Q4, Q1 tend to be a little bit stronger. So we know that Q2 -- our Q2 and our Q3 are probably going to be the lighter revenue just on a historic basis for them. And so we have it ramping up into the fourth quarter.

[David Shaffer, executive]

And we're -- you and I are headed over there next week, Andy?

[Andrea Funk, executive]

Yes. We're going to do a little -- I think it's August 21 is when we're going to be there to do a celebration. We had -- Mark and his team were on site today at close. We -- it's a great team. It's just a tremendous fit, very excited about the [indiscernible].

[David Shaffer, executive]

It's been a great start. So we couldn't be more excited.

[Operator]

Our next question comes from the line of Greg Wasikowski from Webber Research & Advisory.

[Gregory Wasikowski, analyst]

Hey, just to put a finer point on that last question. Is there any other puts and takes with the '25 guidance move? So maybe to ask another way, in the absence of Bren-Tronics, do you think that there'll be any guidance shifts for FY '25 or be more or less the same?

[Andrea Funk, executive]

Yes. We -- I think this early in on the fiscal year, we still have confidence in our full year guidance. So we didn't make any changes to our underlying base. I mean we might have done a little shifting internally. But overall, we still have cautious optimism in being able to hit our full year number. I think we're looking at the news just like everyone else's. And obviously, it's an election year. There's a lot of things going on. But we look internally at our signals and our order book is looking good.

Motive Power, for example, just to give you a little bit of color. Our backlog coverage is still 50% higher than prepanemic levels. In Q1, our book-to-bill was 0.9, little bit below 1. So was that reason for concern? About half of that was seasonality. Half was orders that were pulled in advance of the 331 price increase. First week of August, we had a 1.4 book-to-bill. So overall, it just feels very healthy to us. So we're -- as is everyone on the street, we're trying to be very alert to look for any signals. And overall, we're feeling pretty good.

[David Shaffer, executive]

Yes. And I'd say the keen focus for me and our leadership is on pricing and cost control right now with some of this macro uncertainty. So there's reason to be cautiously optimistic about the EPS even if the top line has some issues with some of these macro uncertainties. But there's an intense focus on our part for pricing and cost control.

[Gregory Wasikowski, analyst]

Understood. Okay. And then I always like to ask about the fast charging product. So Dave, could you characterize the backlog there, how that's developed in the past couple of quarters and how demand is trending? And then any updated thoughts on crossing into other business lines as well?

[David Shaffer, executive]

All excellent questions. So the customer is at site right now at the factory signing off on the first unit. The first units always take a little longer. Then I would say the initial focus with the customer is on the first 5 units, which will be installed this quarter. And the progress is -- and Andy, unless something changed the last couple of days, that's the last data point I'm working with. And then really, at that point, our initial launch customer is going to start to freshen what their site identification are and layer in.

So there's -- I don't want to say we're in a hold with our launch customer. We're just -- they want to make sure, as I would, in their shoes, to make sure everything is running smoothly and as planned. And then they've already identified as we've mentioned to you prior, there's literally hundreds of sites that they've identified that they want to bring this project into. In addition to our launch customer, I would say the opportunity in quoting has been very bullish. And there's a tremendous amount of excitement.

I think what makes us unique is and what our team has done an exceptional job with is these underlying energy management benefits of using energy more efficiently nighttime versus daytime with and without renewable sources, it's the integration of the DC to DC fast chargers, which really makes our product unique. So that's what's drawing a lot of attention to this.

So a lot of positive momentum. The engineering piece, the UL testing, customer acceptance, knock on wood, everything is moving. And we should see more clarity from our customer -- launch customer and a release of more orders as we get through this first phase.

[Andrea Funk, executive]

The exciting as our [indiscernible] customer remains very enthusiastic. It's just a ramp for these types of products can be a little choppy. So we do need to make sure that the units get delivered. They have to get the permitting. And so we -- it's contemplated in our revenue range as far as when we'll actually be booking the revenue.

[Gregory Wasikowski, analyst]

Yes, that makes sense. Do you think that -- is it fair to say that the pipeline is maybe on hold a little bit just in terms of actual conversion to a customer, right, to kind of waiting for this first chunk of units to be operational out in the field? Is that fair to say?

[David Shaffer, executive]

I'd say the way to characterize it with our initial launch customer, let's say they've identified literally hundreds of sites. But in terms of them releasing purchase orders to us for those sites they've identified, that piece is on hold until we get through this early validation phase. And once they get comfortable that everything is working as planned and we're hitting the marks, they're going to start to release more sites to us, which will start to show up in our backlog. So I don't want to -- but from an overall perspective in terms of pipeline, I would say we are actively and very busy on creating new opportunities beyond our initial launch customer.

[Operator]

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

[David Shaffer, executive]

Thanks, Ali, and I want to thank everybody for your interest in EnerSys today, and we look forward to doing this again in 90 days. Have a good day.

[Operator]

Thank you for participating in today's conference. This does conclude the program. You may now disconnect.