We're good to go here. Thanks, everybody, once again for joining us at the 37th Annual Roth Conference here in Dana Point. My name is Chip Moore. I'm on the sustainability research team. Very happy to have with us today EnerSys, Mark Matthews, I believe head of Specialty Global, and Lisa Hartman from VP of IR and Corporate Communications, if I got that right. Thanks again for joining us. Maybe just, Mark, maybe have you start with a brief intro, you know, high-level overview of the company for people that might not know it.
Sure, sure. Thank you guys for having me. Thanks for the conversation. My name is Mark Matthews. As I mentioned, I'm head of our Specialty division at EnerSys, which is our aerospace, defense, and transportation division, does a lot of our lithium products. My background goes back 30 years, which is hard to believe it's 30 years at this point, of designing lithium-ion cells. I'm a chemical engineer by trade, and at some point they said, no more playing in the lab. You actually got to earn your money and do real work. I took over our division in aerospace and defense about eight years ago at EnerSys, and then Specialty became an official division about three or four years ago. EnerSys in and of itself is a unique company. We're just going to be about $3.5 billion-$4 billion of revenue this year.
We have three really divisions that we do a lot of work in. One is the Specialty division, which I mentioned. The other is Motive Power, which is really focused on conversion of ICE fork trucks into battery-powered fork trucks and the charging solutions that go along with that. The third is what we call Energy Systems, which is really a telecom, data center, and broadband support of UPS and support for those systems from an electronic standpoint. We do that with three different technologies. The first technology is energy storage, which is batteries. We do flooded lead acid batteries. We do thin plate pure lead, which is our own unique version of a lead acid battery that has some capabilities that allows it to perform kind of in a hybrid space between flooded batteries and lithium batteries.
We have just started to do lithium batteries in and of ourselves. I am sure at some point today we will talk about the gigafactory we are getting ready to build in Greenville, South Carolina. We also do power electronics, which I think is an important part of what we do from a battery management system perspective, as well as charging solutions, wireless charging solutions for our products, and power distribution. Finally, we have a service element of our business, which is really unique.
I think one of the reasons we'll talk about the stickiness we have with our customers, why we're a valued competitor, and why we're able to continue to get wallet share from our customers, is our service capability and the ability to not only provide the product, but have the service and ongoing support to really see the true total cost of ownership of a value proposition for a lithium or a thin plate pure lead battery on our applications become a reality. That service is a key element to us going forward. That's EnerSys in 30 seconds.
Perfect. Thanks for that. Maybe a follow-up on that, maybe expand on the importance of customer intimacy, you know, how that drives your future sales. And then chemistries, you're a battery expert, you know, thin plate pure lead, you know, lithium-ion, how these progress and your moat, right?
Yeah, I think from a customer intimacy perspective, I mean, I'll just speak from starting, you know, what you can accomplish with having that. For example, in the aerospace and defense piece of our business, you know, we've been the largest provider of batteries for the U.S. Department of Defense and a very large provider for our global partners in Europe. Just having those relationships has opened doors for us to expand not only the products that we make, but that intimacy we have is good support for our future planning. So much of our investment that we require for advancing our products is funded by the U.S. government. The facility that we're building in Greenville has a significant funding element from the Department of Energy, and that's based on a long history of providing and living up to what we say we're going to do.
When you look at some of the other businesses, you know, and we'll talk about some of the largest, you know, logistics companies in the world, you know, we realized not too long ago, and probably shouldn't, couldn't realize it faster, actually, is that, you know, by having these great relationships, we need to be offering more and more to those specific customers. So we are a company that has a lot of different large customers. The largest customers in the world are our customers. But we also realized that we were providing one solution for them. So that intimacy of managing how we're going to become that service provider, but also having that conversation and understanding what their needs are, and then be able to execute against those needs with our technology and expand our product portfolio and our technology roadmaps through that customer intimacy is important.
One thing I've screamed about from ever as we've developed our technology roadmaps in my division is that's only done in conjunction with a good customer. You know, we need to understand where our customers are going and where they're going to be not only in a year from now, but in five years from now, and then make sure we have the technology that intersects them at that roadmap. That's one thing that we've done. As you mentioned, technology, you know, the advancing and the investments we made in thin plate pure lead was understanding that maintenance-free was becoming a real issue in this marketplace. We had customers that were investing people time, labor time in a world that's confined by labor, that they were out there looking for us to help them solve that problem.
We've converted a lot of our customers over to thin plate pure lead, and we all now see the same thing happening in lithium. We see the need for higher energy density solutions. We see the need for a compliant lithium supply chain that allows us to be able to locate these assets on our grid and with specific customers and us owning that supply chain and reducing our customers' requalification costs that are trying to use EV cells for purposes that are not EVs. That creates a real logistic problem for our customers and a real expense for our customers. You know, just save, give an example, you know, think of what it qualifies to put a satellite in space, right? We qualify a battery for that, and then you come back a week later and say, oh, that battery's now changed.
It costs tens of millions of dollars for Boeing to requalify that satellite. We are able to eliminate that by owning that supply chain, and that is something that we have seen that our customers need. That is the most severe example, but that example exists in Motive Power, that exists with, you know, our telecom customers and our broadband customers. It is for us understanding that technology roadmap, understanding where we want to take that technology, and then putting the right investments to go forward to make that kind of reality. That is either with the automation investment in our plants or investments in the technology for the future.
Great. Maybe we can sort of dive into segments a little bit. Energy Systems, right? You have dominant share in critical communications networks. Just talk about what you've seen there, you know, over the past few years, and it seems like it's troughing and coming back potentially here in a little bit. Maybe start there.
Yeah, with Energy Systems, it's been a tough couple of years. I mean, since, you know, there was a huge expansion of investment during COVID for infrastructure. We saw the investments made around COVID and just prior to COVID of significant investments and the promise of 5G coming and the promise of 4G being rolled out. We were able to really ride a nice growth pattern as that came up. Since then, we've seen those investments fall. We've seen that business has been able to continue to diversify and stay stable, but not at the five-year plans we had on the growth because we just haven't seen the investments that we expected to see from a standpoint on continuing the 5G rollout and the small cell rollout that we expected to see in that business. We're still very optimistic that's going to become a reality.
We've actually started to see signs of that picking back up over the last, I don't want to say last two or three quarters. We're starting to see that business pick back up and start to see the growth that we would have expected to see a year or two ago. As that starts to turn around, we're extremely optimistic. We also see in that space, in the telecom space, in the broadband space, a continued growth, and then we're seeing the data center space becoming, as everyone knows, is booming. It's about positioning the right product for that data center growth and that power management growth in those data centers over the next several years.
You know, we'll talk a little bit about, you know, our future ventures where we're doing a fast charging storage, which is really a BESS, a battery energy storage system that allows us to manage power in a significant way. We see with those data center opportunities as that's a potential for us to be able to manage not only the UPS capability of those data centers, but also use that to manage their load and follow their loads as they need to. Just because power is so difficult. I mean, just when we were doing the research of how and where we're going to have to build a plant, the biggest factor we had was finding available power to build a plant. It was shocking to me. I was like, this should be the easiest part.
You know, just knowing that a very aged grid and trying to work on that grid is a concern. I think the resiliency that our products are starting to create within that market space is good. I think to see a bit of a turnback on some of the investments that are made by the large telecom companies is a positive for us. We're hopeful to see that continue and that space continue to grow. As you said, we have a dominant share there. We think our product portfolio is only going to grow as we start to have the ability to do lithium in that space as well.
Perfect. You brought up data center, right? It's the hot topic. Maybe you can talk a bit more about EnerSys's role, right? I think you have strong share in UPS systems, but maybe for those that aren't as familiar and, you know, what you're thinking about in the future and then even last mile sort of edge processing potential and things like that.
Yeah, so I think, you know, obviously we've done a lot of UPS systems within EnerSys and data center fits that well. Like I mentioned, I think the key for us is to expand our wallet share with those data center customers and help them do a real power management solution. We are, you know, we're at, I think, 50% of data center customers of the U.S. data centers that EnerSys is supporting right now. We see that we continue to grow that going forward. As you see that expansion going, we see that there's significant needs improvement that's coming out of that. With the last mile, that's only going to increase the data center needs. We know we're on the cusp of significant growth. Even the most conservative estimations indicate that it's a very good spot for EnerSys to be in.
A lot of our investments are around creating that product portfolio that can make us successful across all the needs of the data center application, not just the UPS piece.
Perfect. Maybe we shift in the sake of time to Motive Power. Again, you have a very strong share. Just current dynamics that you're seeing, right? There's some uncertainty. That's another buzzword that we hear, tariffs, et cetera. Maybe start there.
Motive Power, unfortunately, is the guy who runs Specialty is our best business, right? As judged by this room for sure, because it's a business that makes our most money. It has our best adjusted operating earnings. It's been a successful business, and it's been a successful business based on exactly the model we've talked about, which is we have the right technology, we have the right service deployment, and we have very stickiness with our customers. We have had significant opportunity and transition from flooded lead batteries to our thin plate pure lead, so going from maintenance to maintenance-free batteries and then creating wireless charging solutions around those. I think at one point, it's over a million chargers we've deployed in this space. We are very comfortable with, you know, charging solutions and the results of what comes out with that.
I think that's an interesting part of that business for us. Tariffs, as with all of our business, and I'll talk about it in my business, how that's had an impact. Tariffs and the uncertainty of tariffs, I think has been really the challenge. It's been the on and off again that we're trying to manage our way through. Our concerns are as capital investments are pushed back, what does that do for us? It's probably something that's a bit beyond our control, but if people aren't making the capital investment in the trucks, does that result in obviously a market concern for us going forward? There's also just some price pressures that are going to come along with the tariffs that we're going to have to react to, particularly in the Motive Power market with steel and aluminum. We're working that right now.
I think we have a good plan to go forward to make sure we're able to pass that cost along. It is the on again, off again of the truck buy. That's probably the biggest concern for us.
Great. Maybe, you know, expand on some of the, you know, people think of it as a GP growth business, but there are some higher growth elements around automation and electrification. Talk about that. You know, you're a battery expert, so lithium-ion adoption in sort of the warehouse, you know, your thoughts on that.
Yeah, I think that the opportunity that's probably lost, and this is something I've learned in the last eight years at EnerSys, is just how significant the transition is of electrification of fork trucks, meaning that there's still 50% of the fork trucks out there are IC or, you know, combustion engine fork trucks. For us, that is low-hanging fruit that we go target, and we can target that in several different ways. We can target that with our flooded product, which is relatively inexpensive. We can do a maintenance-free product, which is kind of that middle of the road product that gives you the thin plate pure lead maintenance-free, or we can go all the way to lithium.
With lithium, that gives us new capabilities, and that gives us some even automated warehouse capabilities that are an advantage in that location where you can take advantage of the full power of lithium, the fact that it does not need to be, it can be charged quickly, does not need to be charged as frequently, and has infinite cycle life for all practical purposes relative to lead. From our standpoint, we have now got a full suite of products that, regardless of what that Motive Power customer needs, our goal is just to get them to switch and understand that you are going to save money by going to an electric solution. You are going to make your warehouse a lot better place to work if you go to an electric solution, and then help us guide you that path.
We are then able to guide them, guide our customers through that to say, what's the best way? Here's a full suite of products from relatively easy, low barrier of entry cost-wise to a full solution with an incredible return on investment. Having the right chemistry solution to do that has been a big part of our success.
Great. Okay. We can come back to Gigafactory. I guess maybe we dive into Specialty, right? You're the business you lead. Aerospace and defense, right? To start, you have very strong relationships. Maybe expand on that. You made an acquisition there, Bren-Tronics, that looks like it's been a good fit. Talk about that and, you know, potential for additional M&A like that.
Yeah. I think aerospace and defense, I'm going to say a lot of good things about it because it's my baby. Aerospace and defense has been a nice growth business for us. It has really been a catalyst from a technology standpoint to be able to trial and learn some of these new technologies that are out there from an electrochemical perspective and also from a technical perspective on battery management systems and charging solutions. We have been able to take advantage of that and roll that out to the rest of the company. We are the largest provider of batteries, power solutions to the U.S. Department of Defense by far. It has become a really significant part of our business. It is a very profitable business for us, but it also represents relationships that we can take advantage of.
The opportunity to buy Bren-Tronics, which Bren-Tronics, what they do is they buy lithium cells, they package them, they create charging solutions, they do expeditionary power type things. What they're able to do is take advantage of the future lithium plant we're going to build. We're going to integrate those cells into their products, and then they can then take and expand those products out into things like hybrid vehicles, directed energy type solutions, anti-drone solutions, all those types of elements that are becoming more and more the forefront of what you see on the news every day. We're able to provide the battery power to do that. Our A&D business is, you know, significantly lithium as compared to the rest of our business.
It is the largest chunk of the Specialty business is lithium as a result as compared to any of the other parts of our business. It is something that we made the investments in, and I feel like has really started to pay off for us as a leader in that space. Bren-Tronics, I can't say enough good about them. We've known them for a long time. First and foremost, they're a great cultural fit for us. I think that when we went out and looked at the acquisition, it had been a while since EnerSys had done an acquisition since pre-COVID of any real size. Bren-Tronics was a great fit because we knew culturally they would fit right.
From a target market perspective, we were able to take advantage of the credibility that EnerSys brings from a finance perspective, from a cash perspective to win orders that Bren-Tronics could not win as a small company. We have seen the order intake from that business really start to tick up in a significant way. I think it is one of those things where the combination of two good entities makes a really good, two plus two made five here. I think that is what we have really learned from Bren-Tronics, these are the acquisitions that are out there. How do we take advantage of these across all of our spaces and how do we utilize these to really grow the top and bottom line in the right way and in a creative way?
I think that's the positive with Bren-Tronics and certainly helps us create credibility to talk about the lithium plant.
Maybe a follow-up on A&D, one of the questions I've gotten a few times. Any concerns around some of the government efficiency, you know, cost-cutting dynamics? Is that a concern at all for that line of business?
It's a concern from a timing perspective. I mean, we've seen some of our programs that have just been delayed a little bit in terms of, you know, this money wasn't allocated as quickly. To be honest, that happens at every transition between government entities. Anytime we have a presidential transition or government change, we see a little bit of delay. We haven't seen a huge concern. Obviously, I think for us, the budget is, we need the budget to be passed. We need it to be fully loaded in for us to make sense. No, there hasn't been a huge disruption yet from that, but we're keeping our eyes on it.
Great. Maybe the other piece of specialty, right, in trucking, auxiliary power, you know, what you're seeing, what's the latest, you know, signs of improvement, and then I think the aftermarket opportunity, right, is pretty exciting. Talk about that.
Yeah. The other part of our business, or my business, is transportation. We talk classic trucking, trucking sleeper cabs. As you guys are aware, there's no anti-idling anymore, or you can't idle your truck anymore. A sleeper cab can no longer park in the rest stop and keep its engine running all night. What happened when that happened is traditional flooded batteries that were trying to be the auxiliary power unit died. They couldn't handle that load. Our thin plate pure lead batteries are able to do that in a really, really strong way to continue to start the vehicle and power the vehicle as you would a normal lead acid battery, but it can actually run that overnight load for air conditioning and for electronics for that cab without any issues.
We have been able to successfully convince fleets like Penske and others to convert their entire fleet over to a thin plate pure lead battery. What that has resulted in is about now it is one out of three, almost one out of almost two out of five batteries that are made in North America, trucks that are made in North America use EnerSys Group 31 batteries out of the factories. We have had our issues with trucking in the last year because it has been a down market. What that has created for us is an opportunity to put in place the logistics to be able to go after and close that out and be able to go after that aftermarket and be able to win the aftermarket business and that trucking business. We have seen significant growth.
I think this year we're up over 20% year on year, just in aftermarket business in that segment. Even though we're down on the OEM segment, we're up in the aftermarket segment, which has always been our plan, not to go down in one, but to go up in the other. You know, our goal is to continue to grow that ratio. We have about a 30% OEM business, 70% aftermarket business, and we feel like that would be a very healthy mix between those two businesses.
A follow-up there, and you know, it'll go back to Energy Systems, but manufacturing, right? You're making some investments around, you know, flexible, faster lines, and I believe it plays in both those segments. So thin plate pure lead. Talk about that and what that's going to bring.
Yeah, we did an acquisition in 2018 for NorthStar. Yep. Within Springfield, Missouri, and we started to run that normally. What we realized through COVID and through our different markets is we did not have the flexibility in that plant that we needed. We still had a, you know, a relatively, relative to our other lithium thin plate plants, we had a lack of automation that we needed. We were able to go, we made those investments, and that is coming online this year to fully automate the Springfield plants to be more like what we would see in our other global plants in Arras, France, and in Warrensburg, Missouri. That is going to give us a flexibility that regardless of where the demand is up or down, we are able to make all those different form factors on multiple different lines.
Simple concept, but an investment that needed to be made. It has a large impact on my P&L because it means that we have automated equipment building our batteries for the trucking industry. It means we have the flexibility to decide what to build on what lines and to keep those plants full so we're not reliant on mix to make that happen, just relying on total portfolio and then we can, or total demand, and then we can figure out how to split that up. It's taken a while to get there, probably longer than we wanted to get there, but this is the first year we're going to have all of our plants relatively full high-speed automation for thin plate pure lead in both Europe and in the States, and that's going to give us flexibility we've never had before.
Great. I know we have a few minutes here. If anyone has any questions, I'll open it up or I'll keep going. Okay. Lithium-ion gigafactory, right? We haven't really talked about that yet. Latest thinking around that, obviously you want a substantial grant, but I don't believe that, right, the money's in the door yet. Just an update.
Yeah, I can give you a, we want, our gigafactory is a 4 gigawatt-hour facility. It's going to be in Greenville, South Carolina. We chose Greenville for a lot of reasons. We think it's a great fit for us. One of the reasons it became a reality for us is we were able to get a $200 million grant from the Department of Energy. Between the IRA funding that we get for our cells that we produce in a lot of our TPPL factory and the DOE grant, as well as state and local money we're able to raise, we were able to really make this make a lot of sense for us to make this investment. The concept behind the lithium plant is that we can make a cell cheaper than we can land a cell.
We are by under no perception that I'm going to make a cell cheaper than CATL is going to make it in China. That's not what we're trying to do, but we can certainly make a cell for cheaper than I can get a CATL cell into my facility in the U.S. That's kind of the background of how we've gotten here. We did see probably the biggest impact of the administration change has been basically just the stoppage that we've seen with the DOE. We were fortunate that right just before the administration change, our contract was signed. We got our money moved to a national lab.
We feel like we're in a really good spot there, but we're going to play conservative until we see that money fully released because it probably has impacts if we don't, if for whatever reason that money went away, which we don't think it will. If it did, it would probably change kind of the scope of what we're looking at doing a little bit, but probably not the entity that we would want to do. I think from our perspective, we're hearing nothing but encouraging things. One, this project aligns exactly where this administration wants to go, which is to build jobs. I was part of the one that raised the money for this plant.
I can tell you that regardless of who I went in, what side of the aisle you went in on, that's the one thing they agreed on is they wanted to redomesticate jobs in the U.S. from China. I feel like we're in a really good spot. We're a heavy defense unit for this plant. We feel like there's a lot of momentum behind this to make it a reality. You know, hopefully we get this, what's going on in DC calms down here in the next few weeks and we'll get back to business as normal. Until then, we're holding ourselves conservative and not rolling out and moving, making decisions till we know exactly when that $200 million is going to be here.
Awesome. In our last minute here, maybe, you know, future growth areas, fast charge and storage, but then there is a big trade show next week. I think you are debuting, or not debuting, but previewing, right, a new solution. Just talk about energy management.
Yeah, it's actually this week and I'll be there tomorrow at ProMat.
I'm driving her to the airport after this so she can go do that. I think this is exciting times because it's really where we can take advantage of our customer to see that we developed. We have developed a Fast Charge and Storage System, but at the core of that Fast Charge and Storage System is a BESS system. What we look at is we can take this BESS system and in the future we're going to be able to combine that, you know, just think about a Walmart warehouse, right? It's got all of our fork truck batteries, it's got all of our charging solutions in there, and now I integrate a BESS system in there.
I'm doing the entire power management of the entire warehouse and able to not only save the money on the grid, but actually help them level load the grid so when they expand, they don't have to have additional capacity brought in. Battery energy storage. It's a big battery. I probably shouldn't say BESS system because it's just BESS, right? I would just say battery energy storage system. Anyway, yeah. It's a large system. It's a one megawatt hour or bigger. What that system has the ability to do is application stack on the back end to save money so it does demand reduction, demand charging. It allows you to pull less energy off the grid and basically act as a buffer to the grid for that solution. Where we see, we have a lot of people are doing that.
We're not kidding ourselves that we're unique in this market. Where we're unique is we have infrastructure in places already that need BESS systems that will be able to tie our Internet of Things in those locations to a BESS system. That kind of puts us in a unique spot to take advantage of a whole portfolio of solutions within a warehouse versus just a BESS system that's managing your grid. You're managing your whole Energy System within a logistics warehouse. I think that's an exciting thing for us. It represents our ability in the future to take advantage of a lithium plant where I control the cell. I have a US-made cell. I'm putting something on the grid. All those things start to line up where we make a lot of sense in that space.
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