EnerSys(ENS) - 2026 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents EnerSys' unaudited consolidated condensed financial statements for the quarter ended June 29, 2025, including the balance sheets, statements of income, comprehensive income, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, acquisitions, revenue recognition, and other financial instrument details Consolidated Condensed Balance Sheets (Unaudited) Consolidated Condensed Balance Sheets (Unaudited) | Metric | June 29, 2025 (in Thousands) | March 31, 2025 (in Thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $4,110,987 | $3,971,248 | | Total current assets | $2,166,499 | $2,089,814 | | Cash and cash equivalents | $346,662 | $343,131 | | Accounts receivable, net | $566,766 | $597,942 | | Inventories, net | $789,340 | $739,994 | | Property, plant, and equipment, net | $607,129 | $592,433 | | Goodwill | $758,184 | $721,073 | | Total liabilities | $2,244,838 | $2,051,760 | | Total current liabilities | $721,479 | $775,068 | | Long-term debt, net | $1,269,020 | $1,083,541 | | Total equity | $1,866,149 | $1,919,488 | Consolidated Condensed Statements of Income (Unaudited) Consolidated Condensed Statements of Income (Unaudited) | Metric | Quarter ended June 29, 2025 (in Thousands) | Quarter ended June 30, 2024 (in Thousands) | Change (YoY) | | :----------------------------------- | :--------------------------------------- | :--------------------------------------- | :------------ | | Net sales | $893,024 | $852,916 | +4.7% | | Gross profit | $253,228 | $238,371 | +6.2% | | Operating earnings | $86,480 | $91,331 | -5.3% | | Earnings before income taxes | $65,658 | $79,329 | -17.2% | | Net earnings attributable to EnerSys stockholders | $57,458 | $70,111 | -18.1% | | Basic EPS | $1.48 | $1.74 | -14.9% | | Diluted EPS | $1.46 | $1.71 | -14.6% | | Dividends per common share | $0.24 | $0.225 | +6.7% | Consolidated Condensed Statements of Comprehensive Income (Unaudited) Consolidated Condensed Statements of Comprehensive Income (Unaudited) | Metric | Quarter ended June 29, 2025 (in Thousands) | Quarter ended June 30, 2024 (in Thousands) | | :------------------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net earnings | $57,458 | $70,111 | | Total other comprehensive income (loss), net of tax | $30,414 | $(9,544) | | Total comprehensive income (loss) | $87,872 | $60,567 | | Comprehensive income (loss) attributable to EnerSys stockholders | $87,832 | $60,589 | Consolidated Condensed Statements of Cash Flows (Unaudited) Consolidated Condensed Statements of Cash Flows (Unaudited) | Metric | Quarter ended June 29, 2025 (in Thousands) | Quarter ended June 30, 2024 (in Thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by (used in) operating activities | $968 | $10,398 | | Net cash (used in) provided by investing activities | $(41,414) | $(46,984) | | Net cash provided by (used in) financing activities | $25,964 | $50,946 | | Effect of exchange rate changes on cash and cash equivalents | $18,013 | $(3,615) | | Net increase (decrease) in cash and cash equivalents | $3,531 | $10,745 | | Cash and cash equivalents at end of period | $346,662 | $344,069 | Notes to Consolidated Condensed Financial Statements (Unaudited) This section provides detailed explanations and disclosures for the consolidated condensed financial statements, covering accounting policies, recent acquisitions, revenue recognition, financial instruments, debt, equity, and segment information 1 Basis of Presentation - The unaudited consolidated condensed financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, not including all footnotes required for complete financial statements[16] - Fiscal 2026 quarters end on June 29, 2025, September 28, 2025, December 28, 2025, and March 31, 2026. Fiscal 2025 quarters ended on June 30, 2024, September 29, 2024, December 29, 2024, and March 31, 2025[19] - The Company is evaluating the impact of recently issued FASB standards on income tax disclosures (effective FY25) and disaggregation of income statement expenses (effective FY27)[23][24][25] 2 Acquisition - On July 26, 2024, EnerSys acquired Bren-Tronics Defense LLC for $206,374 thousand, a manufacturer of portable power solutions for military and defense applications. The acquisition resulted in $50,821 thousand in goodwill, primarily attributable to the assembled workforce and management experience, and is tax deductible[26][28][29] Fair Values of Assets Acquired and Liabilities Assumed (July 26, 2024) | Item | Amount (in Thousands) | | :-------------------------- | :-------------------- | | Total assets acquired | $168,352 | | Total liabilities assumed | $12,799 | | Net assets acquired | $155,553 | | Consideration transferred | $206,374 | | Goodwill | $50,821 | 3 Revenue Recognition - Revenues recognized over time for customized products amounted to $37,496 thousand for Q1 FY26 and $52,332 thousand for Q1 FY25[32] Aggregate Transaction Price Allocated to Unsatisfied Performance Obligations (June 29, 2025) | Fiscal Year | Estimated Revenue Recognition (in Thousands) | | :------------ | :----------------------------------------- | | Total | $177,104 | | 2026 | $88,477 | | 2027 | $64,948 | | 2028 | $23,679 | Contract Liabilities | Metric | June 29, 2025 (in Thousands) | March 31, 2025 (in Thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Current portion | $29,633 | $28,820 | | Non-current portion | $770 | $488 | | Revenues recognized from beginning-of-quarter contract liability (Q1 FY26) | $7,576 | N/A | | Revenues recognized from beginning-of-quarter contract liability (Q1 FY25) | N/A | $6,100 | 4 Accounts Receivable Accounts Receivable, net | Metric | June 29, 2025 (in Thousands) | March 31, 2025 (in Thousands) | | :-------------------------- | :----------------------------- | :----------------------------- | | Accounts receivable | $575,292 | $606,617 | | Allowance for doubtful accounts | $8,526 | $8,675 | | Accounts receivable, net | $566,766 | $597,942 | - Under a Receivables Purchase Agreement (RPA) maturing in December 2025, the Company sold $189,892 thousand of accounts receivables in Q1 FY26 (all collected) and $189,736 thousand in Q1 FY25 (all collected). Total collateralized accounts receivables held by EnerSys Finance were approximately $350,538 thousand at June 29, 2025[37][39] 5 Inventories Inventories, net | Metric | June 29, 2025 (in Thousands) | March 31, 2025 (in Thousands) | | :---------------- | :----------------------------- | :----------------------------- | | Raw materials | $309,633 | $296,365 | | Work-in-process | $130,583 | $125,459 | | Finished goods | $349,124 | $318,170 | | Total | $789,340 | $739,994 | 6 Fair Value of Financial Instruments Recurring Fair Value Measurements (Derivatives) | Derivative Type | Total Fair Value Measurement June 29, 2025 (in Thousands) | Total Fair Value Measurement March 31, 2025 (in Thousands) | | :-------------------------- | :------------------------------------------------ | :------------------------------------------------- | | Lead forward contracts | $2,484 | $(225) | | Foreign currency forward contracts | $(746) | $1,629 | | Interest Rate Swaps | $(73) | $5 | | Net investment hedges | $(87,823) | $(33,002) | | Total derivatives | $(86,158) | $(31,593) | Carrying Amounts and Estimated Fair Values of Derivatives and Senior Notes | Financial Instrument | Carrying Amount June 29, 2025 (in Thousands) | Fair Value June 29, 2025 (in Thousands) | Carrying Amount March 31, 2025 (in Thousands) | Fair Value March 31, 2025 (in Thousands) | | :------------------- | :--------------------------------------- | :------------------------------------ | :----------------------------------------- | :------------------------------------- | | Senior Notes | $600,000 | $599,550 | $600,000 | $591,420 | | Derivatives | $86,158 | $86,158 | $(31,593) | $(31,593) | 7 Derivative Financial Instruments - EnerSys uses derivative instruments (lead forward contracts, foreign currency forward contracts, interest rate swaps, cross currency fixed interest rate swaps) to reduce exposure to fluctuations in commodity prices, foreign exchange rates, and interest rates, not for speculative purposes[48][50][51] - The Company anticipates reclassifying $13,251 thousand of pretax gain from AOCI into cost of goods sold and interest expense in the coming twelve months, related to various hedging instruments[55] Fair Value of Derivative Instruments (June 29, 2025 and March 31, 2025) | Instrument | June 29, 2025 (Assets) | March 31, 2025 (Assets) | June 29, 2025 (Liabilities) | March 31, 2025 (Liabilities) | | :--------------------------------------- | :--------------------- | :---------------------- | :-------------------------- | :--------------------------- | | Lead forward contracts | $2,484 | $0 | $0 | $225 | | Foreign currency forward contracts (Cash Flow Hedges) | $0 | $0 | $1,248 | $290 | | Foreign currency forward contracts (Not Designated) | $502 | $1,919 | $0 | $0 | | Interest rate swaps | $0 | $5 | $72 | $0 | | Net investment hedges | $0 | $0 | $87,823 | $33,002 | Effect of Derivative Instruments on the Consolidated Condensed Statements of Income (Quarter ended June 29, 2025) | Derivative Type | Pretax Gain (Loss) Recognized in AOCI (Effective Portion) | Location of Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | Pretax Gain (Loss) Reclassified from AOCI into Income (Effective Portion) | | :--------------------------------------- | :------------------------------------------------------- | :----------------------------------------------------------------------- | :----------------------------------------------------------------------- | | Lead forward contracts | $1,489 | Cost of goods sold | $(1,264) | | Foreign currency forward contracts | $(1,848) | Cost of goods sold | $224 | | Interest rate swaps | $(374) | Interest expense | $(297) | | Cross currency fixed interest rate swaps (Net Investment Hedges) | $(55,994) | Interest expense | $(1,173) | | Foreign currency forward contracts (Not Designated) | N/A | Other (income) expense, net | $1,118 | 8 Income Taxes - The consolidated effective income tax rate increased to 12.5% in Q1 FY26 from 11.6% in Q1 FY25, primarily due to the greater impact of Pillar 2 and the mix of earnings among tax jurisdictions[65] - Foreign income is estimated to be 52% of worldwide income for fiscal 2026 (up from 49% in FY25), with foreign effective tax rates increasing to 16% in Q1 FY26 from 14% in Q1 FY25, mainly due to Pillar 2[66][67] - The Company is evaluating the potential impact of the recently enacted 'One Big Beautiful Bill Act' (OBBBA) on its consolidated financial statements, which includes changes to U.S. tax law[64] 9 Warranty Changes in Liability for Product Warranties | Metric | Quarter ended June 29, 2025 (in Thousands) | Quarter ended June 30, 2024 (in Thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Balance at beginning of period | $66,421 | $60,819 | | Current period provisions | $7,018 | $7,147 | | Costs incurred | $(6,025) | $(5,865) | | Foreign currency translation adjustment | $1,011 | $(368) | | Balance at end of period | $68,425 | $61,733 | 10 Commitments, Contingencies and Litigation - EnerSys is routinely involved in legal actions and regulatory examinations related to environmental, anticompetition, employment, and contract laws, with claims for substantial monetary damages asserted in some cases[69] - The Company is subject to environmental laws and regulations, particularly concerning hazardous substances like lead and acid, and believes it has adequate reserves for environmental liabilities[70] - To manage volatility, EnerSys uses lead and foreign currency forward contracts (mostly under one year) and cross-currency fixed interest rate swap agreements (maturing 2026-2029) to hedge net investments in foreign operations[71] 11 Restructuring and Other Exit Charges - On July 22, 2025, EnerSys announced a reduction in force plan to cut approximately 11% (575 employees) of its non-production global workforce, expecting $15,000 to $20,000 thousand in one-time cash charges and approximately $80,000 thousand in annualized savings starting in fiscal 2026[74][147] Restructuring and Exit Charges by Segment (Q1 FY26) | Segment | Restructuring Charges (in Thousands) | Exit Charges (in Thousands) | Total (in Thousands) | | :-------------- | :--------------------------------- | :-------------------------- | :------------------- | | Energy Systems | $764 | $291 | $1,055 | | Motive Power | $488 | $4,319 | $4,807 | | Specialty | $0 | $0 | $0 | | Total | $1,252 | $4,610 | $5,862 | - The Company approved a plan on April 1, 2025, to close its Monterrey, Mexico facility, expecting approximately $13,700 thousand in pre-tax charges, with $4,015 thousand in severance costs recorded in Q1 FY26[76][77] - The Ooltewah, Tennessee facility closure plan was completed as of Q1 FY26, and the Company recorded a $1,142 thousand gain from the sale of the building during the quarter[87][91][193] 12 Debt Long-Term Debt Summary | Debt Type | Principal June 29, 2025 (in Thousands) | Unamortized Issuance Costs June 29, 2025 (in Thousands) | Principal March 31, 2025 (in Thousands) | Unamortized Issuance Costs March 31, 2025 (in Thousands) | | :------------------------------------ | :--------------------------------------- | :------------------------------------------------------- | :--------------------------------------- | :------------------------------------------------------- | | Senior Notes | $600,000 | $4,994 | $600,000 | $5,276 | | Fourth Amended Credit Facility, due 2026 | $675,000 | $986 | $490,000 | $1,183 | | Total Long-term debt, net | $1,269,020 | N/A | $1,083,541 | N/A | - The Company has $300,000 thousand in 4.375% Senior Notes due 2027 and $300,000 thousand in 6.625% Senior Notes due 2032, both unsecured and unsubordinated obligations[98][100] - As of June 29, 2025, the Fourth Amended Credit Facility had $465,000 thousand outstanding under the Second Amended Revolver, $110,000 thousand under the Second Amended Term Loan, and $100,000 thousand under the Third Amended Term Loan[112] Short-Term Debt and Available Lines of Credit | Metric | June 29, 2025 (in Thousands) | March 31, 2025 (in Thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Short-term borrowings | $29,623 | $28,502 | | Weighted average interest rate | 4.2% | 4.7% | | Available and undrawn lines of credit | $467,853 | $652,552 | | Uncommitted lines of credit | $88,284 | $87,982 | 13 Retirement Plans Net Periodic Benefit Cost for Defined Benefit Pension Plans | Metric | United States Plans (Q1 FY26) | United States Plans (Q1 FY25) | International Plans (Q1 FY26) | International Plans (Q1 FY25) | | :------------------------ | :---------------------------- | :---------------------------- | :---------------------------- | :---------------------------- | | Service cost | $0 | $0 | $266 | $239 | | Interest cost | $0 | $166 | $690 | $621 | | Expected return on plan assets | $(10) | $(47) | $(377) | $(351) | | Amortization and deferral | $0 | $(17) | $160 | $144 | | Net periodic benefit cost | $(10) | $102 | $739 | $653 | 14 Stock-Based Compensation - Stock-based compensation expense was $17,601 thousand for Q1 FY26, a significant increase from $7,062 thousand in Q1 FY25[120] - In Q1 FY26, the Company granted 3,291 restricted stock units to non-employee directors (vested immediately) and 18,694 restricted stock units to management and key employees (vesting over four years)[121][122] - As of June 29, 2025, there were 1,276,842 non-qualified stock options, 926,750 restricted stock units, and 1,146 TSRs outstanding[122] 15 Stockholders' Equity and Noncontrolling Interests Common Stock Outstanding | Metric | Shares outstanding as of March 31, 2025 | Shares outstanding as of June 29, 2025 | | :------------------------------------------------------- | :-------------------------------------- | :------------------------------------- | | Beginning balance | 39,192,061 | N/A | | Purchase of treasury stock | (1,740,161) | N/A | | Shares issued under equity-based compensation plans, net | 4,708 | N/A | | Ending balance | N/A | 37,456,608 | - The Company purchased 1,740,161 shares for $150,034 thousand in Q1 FY26, compared to 129,433 shares for $11,641 thousand in Q1 FY25. Treasury stock held increased to 19,383,536 shares at June 29, 2025, from 17,647,529 shares at March 31, 2025[124] Accumulated Other Comprehensive Income (AOCI), net of tax | Component | March 31, 2025 (in Thousands) | June 29, 2025 (in Thousands) | | :------------------------------------ | :---------------------------- | :--------------------------- | | Pension funded status adjustment | $(10,374) | $(10,251) | | Net unrealized gain (loss) on derivative instruments | $(269) | $193 | | Foreign currency translation adjustment | $(236,836) | $(207,047) | | Total AOCI | $(247,479) | $(217,105) | Reclassifications from AOCI (Q1 FY26) | Component | Amounts Reclassified from AOCI (in Thousands) | Location of (Gain) Loss Recognized on Income Statement | | :------------------------------------ | :------------------------------------------ | :---------------------------------------------------- | | Net unrealized gain on derivative instruments (cash flow hedges) | $(1,337) | Cost of goods sold | | Net unrealized gain on derivative instruments (net investment hedges) | $(1,173) | Interest expense | | Prior service costs and deferrals (pension) | $160 | Net periodic benefit cost | Changes in Equity Attributable to EnerSys Stockholders and Nonredeemable Noncontrolling Interests (Q1 FY26) | Metric | Balance at March 31, 2025 (in Thousands) | Net Change (in Thousands) | Balance at June 29, 2025 (in Thousands) | | :------------------------------------ | :--------------------------------------- | :------------------------ | :-------------------------------------- | | Total EnerSys stockholders' equity | $1,916,078 | $(53,379) | $1,862,699 | | Total equity | $1,919,488 | $(53,339) | $1,866,149 | 16 Earnings Per Share EPS Reconciliation | Metric | Quarter ended June 29, 2025 | Quarter ended June 30, 2024 | | :------------------------------------------------------- | :-------------------------- | :-------------------------- | | Net earnings attributable to EnerSys stockholders (in Thousands) | $57,458 | $70,111 | | Basic weighted-average common shares outstanding | 38,798,263 | 40,204,013 | | Diluted weighted-average common shares outstanding | 39,295,773 | 40,986,116 | | Basic EPS | $1.48 | $1.74 | | Diluted EPS | $1.46 | $1.71 | | Anti-dilutive equity awards not included | 661,088 | 347,099 | 17 Business Segments - EnerSys operates through four segments: Energy Systems (UPS, telecom, data centers), Motive Power (forklifts, material handling), Specialty (transportation, aerospace, defense, medical), and New Ventures (energy storage and EV charging)[133][135] Net Sales by Segment to Unaffiliated Customers | Segment | Quarter ended June 29, 2025 (in Millions) | Quarter ended June 30, 2024 (in Millions) | Change (YoY) | | :-------------- | :--------------------------------------- | :--------------------------------------- | :------------ | | Energy Systems | $391.4 | $361.0 | +8.4% | | Motive Power | $349.1 | $366.2 | -4.7% | | Specialty | $148.5 | $125.7 | +18.1% | | Other | $4.0 | $0 | NM | | Total Net Sales | $893.0 | $852.9 | +4.7% | Capital Expenditures by Segment | Segment | Quarter ended June 29, 2025 (in Thousands) | Quarter ended June 30, 2024 (in Thousands) | | :-------------- | :--------------------------------------- | :--------------------------------------- | | Energy Systems | $13,678 | $8,776 | | Motive Power | $9,187 | $6,445 | | Specialty | $8,562 | $11,576 | | Other | $1,592 | $9,340 | | Total | $33,019 | $36,137 | Property, Plant and Equipment, net by Segment | Segment | June 29, 2025 (in Thousands) | June 30, 2024 (in Thousands) | | :-------------- | :----------------------------- | :----------------------------- | | Energy Systems | $202,796 | $181,992 | | Motive Power | $134,403 | $132,209 | | Specialty | $255,561 | $223,153 | | Other | $14,369 | $9,716 | | Total | $607,129 | $547,070 | 18 Subsequent Events - On August 6, 2025, the Board of Directors approved a quarterly cash dividend of $0.2625 per share, payable on September 26, 2025, to stockholders of record as of September 12, 2025[140] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on EnerSys' financial condition and results of operations for the quarter ended June 29, 2025, discussing net sales, gross profit, operating expenses, and segment performance, alongside insights into liquidity, capital resources, economic climate, and market risks CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS - The report contains forward-looking statements, which are subject to risks, uncertainties, and assumptions, and actual results may differ materially from those expressed[141][142] - Key factors that may affect future performance include global economic trends, supply chain disruptions, commodity price volatility, geopolitical risks, and the ability to implement business strategies[143] Overview - EnerSys is a global leader in stored energy solutions for industrial applications, designing, manufacturing, and distributing energy systems, motive power batteries, specialty batteries, and related equipment across four operating segments: Energy Systems, Motive Power, Specialty, and New Ventures[146][150] - On July 22, 2025, the Company announced a strategic reduction in force plan, targeting an 11% reduction in non-production global workforce (approximately 575 employees), expecting $15.0 million to $20.0 million in one-time cash charges and approximately $80.0 million in annualized savings starting in fiscal 2026[147] - On July 26, 2024, EnerSys completed the acquisition of Bren-Tronics Defense LLC for $206.4 million, a leading manufacturer of portable power solutions for military and defense applications, with financial results reported within the Specialty segment[148] Economic Climate - Global economic conditions are mixed, influenced by U.S. tariffs, elevated interest rates, and heightened geopolitical tensions (e.g., Ukraine war, Israel-Hamas conflict), with potential impacts on supply chains and ocean freight costs[149][151][153] - Inflation remains a challenge, though showing signs of cooling in the U.S. and Europe, with central banks cutting interest rates. China's economy faces challenges from a weakened real estate market and declining exports, despite proactive fiscal measures[152] - Market demand in forklift and Class 8 truck sectors is impacted by tariff policy uncertainty, while data center and communications markets are less sensitive, with data centers experiencing growth driven by AI and digitization, and defense budgets increasing due to geopolitical tensions[154] Volatility of Commodities and Foreign Currencies - EnerSys' most significant commodity and foreign currency exposures are related to lead and the Euro, respectively, with lead prices ranging from $1.00 to $0.90 per pound in fiscal year 2025[155] - Costs for other raw materials like steel, acid, separator paper, and electronics have moderated since mid-fiscal year 2024, but copper prices have seen increases since the beginning of fiscal year 2025[155] Customer Pricing - Customer selling prices have fluctuated to offset volatile commodity costs, with approximately 25% of revenue subject to market-based lead index adjustments, typically lagging movements by six to nine months[155] - Customer pricing is expected to be higher in fiscal 2025 compared to fiscal 2024 due to the lag in adjusting for inflationary cost increases, and the emphasis on lead is expected to decline as the company focuses on energy systems and non-lead chemistries[156] Primary Operating Capital Primary Operating Capital and Percentage of Annualized Net Sales | ($ in Millions) | June 29, 2025 | March 31, 2025 | June 30, 2024 | | :---------------------------------------- | :------------ | :------------- | :------------ | | Accounts receivable, net | $566.8 | $597.9 | $507.9 | | Inventory, net | $789.3 | $740.0 | $713.7 | | Accounts payable | $(363.1) | $(405.7) | $(354.7) | | Total primary operating capital | $993.0 | $932.2 | $866.9 | | Trailing 3 months net sales annualized | $3,572.0 | $3,899.2 | $3,411.6 | | Primary operating capital as a % of annualized net sales | 27.8 % | 23.9 % | 25.4 % | - The primary operating capital percentage increased by 390 basis points to 27.8% at June 29, 2025, compared to March 31, 2025, primarily due to increases in inventory for strategic build-up and decreases in accounts payable[157] - Compared to June 30, 2024, the primary operating capital percentage increased by 240 basis points, driven by the addition of Bren-Tronics balances and strategic inventory build-up, with accounts receivable also increasing due to longer collection terms[158] Liquidity and Capital Resources (MD&A section) - EnerSys maintains a strong financial position with $346.7 million in cash and cash equivalents and approximately $468 million in available and undrawn committed credit lines at June 29, 2025, providing substantial liquidity for short-term requirements and anticipated growth[160] - A substantial majority of the Company's cash and investments are held by foreign subsidiaries for indefinite reinvestment to fund local operations, capital expenditures, and acquisitions[161] - The Company issued $300 million in 6.625% Senior Notes due 2032 on January 11, 2024, using the proceeds to pay down the Fourth Amended Credit Facility, and purchased $150.0 million in treasury stock during Q1 FY26[165][166] Results of Operations This section details the financial performance for the first quarter of fiscal 2026 compared to fiscal 2025, highlighting changes in net sales, gross profit, operating expenses, and segment-specific results, along with the impact of restructuring activities and tax rates Net Sales Net Sales Performance | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | Change (in Millions) | % Change | | :---------------- | :-------------------- | :-------------------- | :------------------- | :--------- | | Net sales | $893.0 | $852.9 | $40.1 | 4.7% | - The 4.7% increase in net sales was driven by a 4% increase from acquisitions, a 1% increase in price/mix, and a 1% increase from foreign currency translation, partially offset by a 1% decrease in organic volume[167] Segment sales Net Sales by Segment to Unaffiliated Customers | Segment | Quarter ended June 29, 2025 (in Millions) | Quarter ended June 30, 2024 (in Millions) | Change (YoY) | | :-------------- | :--------------------------------------- | :--------------------------------------- | :------------ | | Energy Systems | $391.4 | $361.0 | +8.4% | | Motive Power | $349.1 | $366.2 | -4.7% | | Specialty | $148.5 | $125.7 | +18.1% | | Other | $4.0 | $0 | NM | | Total Net Sales | $893.0 | $852.9 | +4.7% | - Energy Systems net sales increased 8.4% due to higher organic volume (5%), price/mix (2%), and foreign currency translation (1%), driven by network communication and data center customers[168] - Motive Power net sales decreased 4.7% primarily due to a 7% decrease in organic volume from macro uncertainty, partially offset by a 2% increase from foreign currency translation[169] - Specialty net sales increased 18.1% due to a 24% increase from acquisitions (Bren-Tronics) and 1% from foreign currency translation, partially offset by a 7% decrease in organic volume from transportation customers[170] Gross Profit Gross Profit Performance | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Net Sales (Q1 FY26) | % of Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :----------- | :-------------------- | :-------------------- | :----------------------- | :----------------------- | :------------------- | :--------- | | Gross Profit | $253.2 | $238.4 | 28.4% | 28.0% | $14.8 | 6.2% | - Gross profit increased by $14.8 million or 6.2% YoY, with the gross profit margin as a percentage of net sales remaining flat, reflecting the greater impact of 45X benefits and favorable price/mix offset by higher freight and materials costs[171] Operating Items Operating Expenses and Restructuring Charges | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Total Net Sales (Q1 FY26) | % of Total Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------------------------------- | :------------------------------- | :------------------- | :--------- | | Operating expenses | $160.8 | $141.2 | 18.0% | 16.5% | $19.6 | 14.0% | | Restructuring and other exit charges | $5.9 | $5.9 | 0.7% | 0.7% | $0 | -1.3% | - Operating expenses increased by $19.6 million or 14.0% YoY, and as a percentage of sales, increased by 150 basis points, driven by a $3.5 million increase in selling expenses and an additional $10.2 million in accelerated stock compensation expense[172][173] Restructuring and Other Exit Charges (MD&A) - Q1 FY26 restructuring charges included $0.8 million for Energy Systems and $0.5 million for Motive Power. Q1 FY25 charges included $3.0 million for Energy Systems, $0.8 million for Motive Power, and $0.3 million for Specialty[174][175] - The July 22, 2025 reduction in force plan is expected to incur $15.0 million to $20.0 million in one-time cash charges, primarily in Q2 and Q3 FY26[176] - The plan to close the Monterrey, Mexico facility, approved April 1, 2025, is expected to incur approximately $13.7 million in pre-tax charges, with $4.0 million in severance costs recorded in Q1 FY26[177][178] - The Ooltewah, Tennessee facility closure plan was completed in Q1 FY26, resulting in a $1.1 million gain from the sale of the building during the quarter[189][193] Operating Earnings Operating Earnings by Segment | Metric | Energy Systems (Q1 FY26) | Motive Power (Q1 FY26) | Specialty (Q1 FY26) | Total (Q1 FY26) | Energy Systems (Q1 FY25) | Motive Power (Q1 FY25) | Specialty (Q1 FY25) | Total (Q1 FY25) | | :--------------------------------------- | :----------------------- | :--------------------- | :-------------------- | :---------------- | :----------------------- | :--------------------- | :-------------------- | :---------------- | | Segment income (in Millions) | $27.4 | $46.7 | $9.6 | $114.3 | $19.0 | $56.0 | $4.9 | $105.7 | | Total operating earnings (in Millions) | $13.9 | $37.8 | $4.2 | $86.5 | $9.0 | $54.4 | $2.1 | $91.3 | - Overall operating earnings decreased by $4.8 million or 5.3% YoY, with operating earnings as a percentage of net sales decreasing by 100 basis points[201] - Energy Systems operating earnings as a percentage of sales increased by 170 basis points due to improved price/mix, higher volumes, and lower operating costs. Specialty operating earnings as a percentage of sales increased by 260 basis points, primarily from the accretive benefit of the Bren-Tronics acquisition[202][204] - Motive Power operating earnings as a percentage of sales decreased by 190 basis points, driven by lower sales volumes and higher commodity costs, partially offset by favorable price/mix[203] Interest Expense Interest Expense Comparison | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Total Net Sales (Q1 FY26) | % of Total Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :------------- | :-------------------- | :-------------------- | :------------------------------- | :------------------------------- | :------------------- | :--------- | | Interest expense | $11.3 | $11.0 | 1.3% | 1.3% | $0.3 | 3.0% | - Interest expense increased by $0.3 million or 3.0% YoY, primarily due to higher average debt outstanding ($1,174.9 million in Q1 FY26 vs. $910.1 million in Q1 FY25)[206] Other (Income) Expense, Net Other (Income) Expense, Net Comparison | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Total Net Sales (Q1 FY26) | % of Total Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :-------------------------- | :-------------------- | :-------------------- | :------------------------------- | :------------------------------- | :------------------- | :--------- | | Other (income) expense, net | $9.5 | $1.0 | 1% | 0.1% | $8.5 | NM | - Other (income) expense, net, was an expense of $9.5 million in Q1 FY26, compared to an expense of $1.0 million in Q1 FY25, primarily due to a foreign currency loss of $6.2 million in Q1 FY26 (vs. a gain of $1.3 million in Q1 FY25)[208] Earnings Before Income Taxes Earnings Before Income Taxes Comparison | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Total Net Sales (Q1 FY26) | % of Total Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :--------------------------- | :-------------------- | :-------------------- | :------------------------------- | :------------------------------- | :------------------- | :--------- | | Earnings before income taxes | $65.7 | $79.3 | 7.4% | 9.3% | $(13.6) | -17.2% | Income Tax Expense (MD&A) Income Tax Expense and Effective Tax Rate | Metric | Q1 FY26 (in Millions) | Q1 FY25 (in Millions) | % of Total Net Sales (Q1 FY26) | % of Total Net Sales (Q1 FY25) | Change (in Millions) | % Change | | :---------------- | :-------------------- | :-------------------- | :------------------------------- | :------------------------------- | :------------------- | :--------- | | Income tax expense | $8.2 | $9.2 | 1.0% | 1.1% | $(1.0) | -11.0% | | Effective tax rate | 12.5% | 11.6% | N/A | N/A | +0.9% | N/A | - The effective income tax rate increased to 12.5% in Q1 FY26 from 11.6% in Q1 FY25, primarily due to the greater impact of Pillar 2 and the mix of earnings among tax jurisdictions[215] - Foreign income is estimated to be 52% of worldwide income for fiscal 2026 (vs. 49% for FY25), with foreign effective tax rates increasing to 16% in Q1 FY26 from 14% in Q1 FY25, mainly due to Pillar 2[216] Critical Accounting Policies and Estimates - There have been no material changes to the Company's critical accounting policies from those discussed in the 2025 Annual Report[217] Liquidity and Capital Resources (Cash Flow and Financing Activities) - Operating activities provided $1.0 million in cash in Q1 FY26, a decrease from $10.4 million in Q1 FY25, mainly due to changes in accounts receivable, inventory, prepaid assets, accrued expenses, and accounts payable[218] - Investing activities used $41.4 million in Q1 FY26, primarily for acquisitions ($12.6 million) and capital expenditures ($33.0 million), partially offset by $4.2 million from asset disposals[219] - Financing activities provided $26.0 million in cash in Q1 FY26, including $231.7 million in revolver borrowings, $150.0 million in treasury stock purchases, and $9.1 million in dividends paid[221] - The effect of exchange rate changes had a positive impact of $18.0 million on cash in Q1 FY26, leading to a total cash and cash equivalents increase of $3.5 million to $346.7 million[223][224] Compliance with Debt Covenants - EnerSys is in compliance with all covenants and conditions under its Fourth Amended Credit Facility and Senior Notes, and expects to continue to comply, with sufficient financial resources for organic growth and acquisitions[230] - The Fourth Amended Credit Facility, maturing September 30, 2026, includes a $130.0 million senior secured term loan, a CAD 106.4 million term loan, and an $850.0 million senior secured revolving credit facility, with interest calculated using SOFR[225][228] Contractual Obligations and Commercial Commitments - As of June 29, 2025, there were no significant changes to the Company's contractual obligations table presented in its 2025 Annual Report[231] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section details EnerSys' exposure to market risks, including raw material costs, foreign currency exchange rates, and interest rates, and outlines the strategies and derivative instruments used to manage these risks Market Risks - EnerSys' cash flows and earnings are exposed to fluctuations in raw material costs, foreign currency exchange rates, and interest rates, which are managed through internal policies and derivative financial instruments, without engaging in speculative trading[232] Counterparty Risks - The Company uses lead forward purchase contracts, foreign exchange forward and option contracts, interest rate swaps, and cross currency fixed interest rate swaps with creditworthy financial institutions to manage market risks[233] - Cross-currency fixed interest rate swap contracts with an aggregate notional amount of $600 million are used to hedge net investments in foreign operations against U.S. dollar and Euro exchange rate volatility, maturing between December 2026 and January 2029[234] Interest Rate Risks - EnerSys is exposed to variable U.S. interest rates on its credit agreements and foreign short-term borrowings, using interest rate swap agreements to convert $200.0 million of variable-rate debt to a fixed-rate basis[236] - A 100 basis point increase in interest rates would have increased annual interest expense by approximately $5.0 million on the variable rate portions of the Company's debt[237] Commodity Cost Risks – Lead Contracts Lead Forward Contracts Outstanding | Date | $'s Under Contract (in millions) | Pounds Purchased (in millions) | Average Cost/Pound | Approximate % of Lead Requirements (1) | | :------------- | :----------------------------- | :------------------------------- | :----------------- | :------------------------------------- | | June 29, 2025 | $96.1 | 107.0 | $0.90 | 23% | | March 31, 2025 | $63.8 | 70.0 | $0.91 | 8% | | June 30, 2024 | $45.2 | 45.0 | $1.01 | 9% | - Approximately 66% of the Company's lead cost requirements for the remaining quarter of this fiscal year are known, considering existing hedge contracts, purchased lead, and the lead tolling program[239] - A 10% increase in the cost of lead is estimated to have increased the cost of goods sold by approximately $16.0 million in the three months of fiscal 2026[239] Foreign Currency Exchange Rate Risks - Approximately 40% of EnerSys' sales and related expenses are transacted in foreign currencies, with the largest exposure from the purchase and conversion of U.S. dollar-based lead costs into local European currencies[240][241] - The Company hedges 5% - 10% of its known annual foreign exchange transactional exposures, primarily using foreign currency forward contracts that generally settle within one year[243] - An unfavorable 10% movement in exchange rates would have adversely changed hedge valuations by approximately $80.5 million at June 29, 2025, compared to $28.2 million at June 30, 2024[245] Item 4. Controls and Procedures This section confirms the effectiveness of EnerSys' disclosure controls and procedures and reports no material changes to internal control over financial reporting, while noting the ongoing assessment for the recently acquired Bren-Tronics Disclosure Controls and Procedures - Management, with the participation of the CEO and CFO, concluded that EnerSys' disclosure controls and procedures were effective as of June 29, 2025[246] Internal Control Over Financial Reporting - There was no material change in EnerSys' internal control over financial reporting during the quarter ended June 29, 2025[247] - The assessment of internal control over financial reporting excludes the recently acquired Bren-Tronics, which accounted for approximately 3% of sales and 5% of total assets as of June 29, 2025[247] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 10 for details on legal proceedings, indicating the company is routinely involved in litigation incidental to its business - EnerSys is routinely involved in litigation incidental to the conduct of its business, with further details provided in Note 10 to the Consolidated Condensed Financial Statements[248] Item 1A. Risk Factors This section directs readers to the Company's 2025 Annual Report on Form 10-K for a comprehensive discussion of risk factors that could materially affect the business - Readers should refer to Part I, Item 1A. Risk Factors in the Company's 2025 Annual Report on Form 10-K for a detailed discussion of factors that could materially affect the business, financial condition, or future results[249] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section summarizes the company's purchases of equity securities, including shares bought from equity incentive plan participants and repurchases authorized by the Board of Directors Purchases of Equity Securities Purchases of Equity Securities | Period | Total number of shares (or units) purchased | Average price paid per share (or unit) | Total number of shares (or units) purchased as part of publicly announced plans or programs | Maximum number (or approximate dollar value) of shares (or units) that may be purchased under the plans or programs | | :---------------------- | :---------------------------------------- | :------------------------------------- | :------------------------------------------------------------------------ | :---------------------------------------------------------------------------------------------------------------- | | April 1- April 30, 2025 | 0 | $0 | 0 | $207,554,607 | | May 1 - May 31, 2025 | 323,782 | $83.17 | 323,560 | $180,642,954 | | June 1 - June 29, 2025 | 1,416,601 | $86.91 | 1,416,601 | $57,520,613 | | Total | 1,740,383 | $86.22 | 1,740,161 | N/A | - The Board of Directors authorized repurchases up to the dilutive effects of equity-based awards and stock option exercises (approximately $34.0 million). Additionally, a $200.0 million stock repurchase authorization was established on November 6, 2024, with no expiration date[252][253] Item 4. Mine Safety Disclosures This item is marked as 'Not applicable', indicating no mine safety disclosures are required for EnerSys - This item is not applicable to EnerSys[254] Item 5. Other Information This section states that no directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - During the quarter ended June 29, 2025, no directors or officers adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement"[255] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, agreements, certifications, and XBRL taxonomy documents - The report includes a list of exhibits, such as the Fifth Restated Certificate of Incorporation, Fifth Amended and Restated Bylaws, various letter agreements, and certifications (e.g., Rule 13a-14(a)/15d-14(a), 18 U.S.C. Section 1350), along with XBRL taxonomy documents[256] SIGNATURES This section contains the required signatures, certifying the filing of the report on behalf of EnerSys by its Chief Financial Officer - The report is duly signed on behalf of EnerSys by Andrea J. Funk, Chief Financial Officer, on August 6, 2025[260]