Q2 2020 Earnings Call
[music].
Right.
Well in Michigan second quarter earnings Conference call.
Hi, all parties, there's almost no question answer session will follow the formal presentation.
Today quite operator Simpson.
Star Zero under telephone keypad Ecomm.
And it's now my pleasure to introduce your host Mr., that's wrong with Canard last aren't Investor relations. Thank you Sir you may begin.
[laughter].
Joining us from college Frisco, what's called the.
Fiscal year 2022nd quarter results.
All right, so called Chairman and CEO, Mike breakout how CFO.
There will be a replay of todays call. It will be available via webcast by going to the company's website, how high do eat dot com or a telephonic replay will be available until may 13.
Information on how to access the replay was provided in yesterdays earnings release.
Please note that information reported on this call speaks only as of today May 620, 20, and therefore, you're advised that any time sensitive information may no longer be accurate at the top of replay listening or transcript read.
This conference call include certain statements, including statements related to the company's expectations of its future operating results.
Maybe considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Investors are cautioned the such forward looking statements involve risks and uncertainties that actual results may differ materially from those projected in these forward looking statements.
These risks and uncertainties include but are not limited to.
Competition, and competitive pressures sensitivity to general economic and industry conditions international political and economic risks availability and price of raw materials and execution of business strategies.
For more information please refer to the company's filings with the Securities and Exchange Commission now I'll turn the call over the past CEO WRECO breadth.
Thanks, and good morning, everyone. Thank you for joining us today to review Paals fiscal 2022nd quarter results I will make a few comments and then I will turn the call over to Mike for more financial commentary before we take your questions.
Let me start by saying how proud I am of every member of our team across the company.
Our top priority has been and as always the safety of our employees.
Covert 19 pandemic has created a lot of fear and uncertainty around the globe.
And it has required us to learn communicate and implement new practices. It Paul to ensure continued safe operation of our facilities.
Beginning in early March we have helped daily conference calls with our executive team to review and assess the state of our operations share critical learnings and take any necessary steps to address operational needs and plan for constituencies.
During each call we cover three critical elements.
Protecting the health and wellbeing of our employees and their families.
Collaborating closely with our customers in support of their projects and service needs and working with our suppliers discuss improvements in safe work practices and early mitigation of any identified supply chain challenges.
Across our seven manufacturing facilities, we have implemented social distancing practices, we have adjusted shift hours increased the frequency and cleaning of factory and office facilities.
And instituted remote work options for those roles to support our manufacturing operations.
We have improved and updated our screening procedures for visitors and the incoming supply of raw materials and equipment.
We have adjust procedures around business travel and we will continue to review any updated guidance from our local and government officials, along with industrial best practices and the coming months.
I will share more about this was the specific impacts of the current virus later my remarks, but let's turn to our second quarter results.
Paul experienced strong activity for new orders for $301 million and new bookings in the second quarter.
An increase of 119% from 137 million in the first quarter and up 53% from $197 million in the second quarter fiscal 2019.
301 million to New awards, such a new company record for bookings performance in a single quarter.
At the end of the second quarter backlog was $566 million also a new company record.
Our second quarter ending backlog includes the sizable contract mentioned on our last call.
A substantial awards to support the design manufacture integration and testing of a Powell custom integrated electrical distribution solutions for large industrial complex being constructed in the United States.
I will design build and deliver multiple power control systems and supported the project.
Contract will convert to revenue over a three year period.
Second quarter revenues increased to $152 million, which was up $28 million or 22% higher than the second quarter fiscal 2019.
We had solid margin performance across most of the business.
Gross profit as percentage of revenues for the second quarter was 19.6% in.
An increase of 340 basis points from the same period last year and 330 basis points sequentially.
Additionally, net income improved to $7.4 million in the quarter from $958000 in the prior year.
We attribute this financial improvement to our continued focus on operational initiatives.
That have been ongoing across the business for some time.
This includes a continued focus on operating efficiencies and productivity and a disciplined approach the mix and quality of our backlog as we pursue new orders.
Now I'll share some of what we're experiencing as result of the global pandemic.
First Paul is designated in the central manufacturer, providing critical electrical distribution solutions across many industries and geographies.
And we remain committed to providing our products and services to the best of our ability during this time.
And as a supplier to industrial manufacturing plants utilities and light rail transportation infrastructure.
Our products and solutions provide our customers with the safe and reliability distribution electrical power.
Second as we have experienced the past cycles.
We have received multiple request to adjust project schedules, while we have not experienced projects being canceled outright.
A number of our customers have pushed off schedules for roughly a dozen or so projects most in the $1 million to $3 million range in size.
Most of these requests are affecting backlog originally planned for our fiscal fourth quarter bridge, resulting and schedules being moved to the right and pushing plan revenue for fiscal 2020 into 2021.
And finally on the supply side, we have been very successful planning mitigation strategies across our supply chain.
We are for the large part we have not experienced any disruption around supply of raw materials and third party equipment.
We have experienced the supply chain challenge from a partner in Mexico, where we perform some sub assembly work.
We've had to temporarily move these operations back in each of our facilities in the US Canada and the United Kingdom. We believe this is a short term efficiency headwind for the business and we're we're working closely with our supplier as local labor leaders in Mexico, along with the Mexican government and other business leaders continue to work constructively to ensure save conditions for all employees.
Yes.
Specific to the North American electrical market, Paul as the only company headquartered in the United States that builds AC medium voltage breakers in North America.
Two of our brands have over 80 combine years of successful reliable performance in the medium voltage market and both are made in the United States right here in Texas.
We will continue to support our customers infrastructure with creative solutions to extend to protect their existing capital investments and provide superior service to help them manage through the cycle.
While this too early to forecast the ultimate impact of these events, we do expect experienced reduced activity for new orders for the balance of the fiscal year from our core oil gas and petrochemical markets.
As we have started the second half of our fiscal 2020, we've acted quickly to adjust our fixed costs.
And as we navigate through the second half and into 2000 2021.
We will continue to monitor and adjust variable cost throughout each of our operations if necessary, we will prudently take additional steps to preserve liquidity.
As we continue to manage our SGN, a and cost structure efficiently and effectively.
The last down cycle for our business started in mid 2015. However, we did not experienced a full effect until our fiscal 2017.
Since then we've executed our playbook to systematically strengthened and build our business. We have steadily increased profitability in the past two and half years and our second quarter results demonstrate the sustainability and strength of our brand.
Paul team has successfully navigated all downturns for the past seven years, and we're confident we will navigate this challenge as well.
With that I'll turn the call over to Mike to provide more detail around our financial results before taking questions.
Thank you Brett and good morning, everyone.
First I will address the current quarter results and then move to year to date.
Revenues through the second fiscal quarter of 2020 increased 22% to $152 million compared to last year's second quarter of 120 formed.
Orders for the second fiscal quarter, with 301 million, a 53% increase versus prior year in higher by 163 million sequentially.
Second quarter orders results were favorably impacted by the January award for the large industrial project and Brad had mentioned.
This puts our total year to date book to Bill ratio of 1.5.
With this award our reported backlog at the end of the second fiscal quarter was $566 million 140 million higher versus the same period in the prior year.
The second quarter of fiscal 2020 represents the highest backlog level in power systems.
Follows fiscal 2022nd quarter revenues across all of our geography strengthened when compared to the same period last year.
Domestic revenues increased by $24 million or 24% to $121 million, while international revenues generated from both our foreign operations as well as export shipments from our domestic locations increased by $4 million or 16% versus prior year to 31 million in the second.
Quarter fiscal 2012.
Revenues from our industrial sector had the most significant impact in the business versus prior year revenues generated from our oil gas and petrochemical sectors in the second fiscal quarter, where 99 million compared to 79 million in the same period a year ago.
Revenues from utility customers were 24 million, a 19% increase versus prior year and traction and other revenues combined totaled 28 million a 13% year over year improvement.
Gross profit in the second fiscal quarter of 2020 improved by $10 million versus the first quarter to $30 million on a 13% sequential volume increase as well as strong execution across our manufacturing footprint.
Gross profit as a percent of revenues continues to improve increasing by 340 basis points compared to one year ago to 19.6% of revenues in the second fiscal quarter, driven by both strong variable cost productivity and operating leverage across the production facilities.
Selling general and administrative expenses or $19 million in the current quarter or 12.3% in revenue.
This was higher by $1 million versus same period a year ago.
Overall SGN as a percent of revenues decreased by 160 basis points versus same period last year and higher value.
The second quarter of fiscal 2020, we reported net income of $7.4 million or 64 cents per share compared to net income of $958000 or eight cents per share in the second quarter fiscal 2018.
Now looking at our year to date results.
Revenues increased 23% to 286 million versus the same period a year ago.
Domestic revenues increased by 21%, while international revenues grew 28% versus prior year.
Gross profit as a percent of revenues increased by 310 basis points that 18% in revenues favorably impacted by increased volume and productivity initiatives across the manufacturing facilities.
Selling general and administrative expenses were 36 million, 12.6% of revenue, which was 170 basis point improvement and prior year compares.
For the six months ending March 31, 2020, net income was $10.2 million or 87 cents per diluted share compared to a net loss of $1.7 million or 15 cents loss per diluted share a year ago.
Year to date free cash flow totaled $4 million. This was driven by 7 million through operational cash flow, while and Vince in property plant equipment was $3 million.
At the end of our fiscal second quarter, we had cash and short term investments of $121 million 36 million higher than a year ago in 4 million lower than our fiscal 2019 year end position.
Long term debt, including current maturities was 800000 down.
Looking forward, while the current environment is exceptionally challenging we have entered into this cycle with a strong balance sheet and ample liquidity, a healthy backlog as well as a disciplined approach to cost management.
Based upon anticipated market conditions in the near term in addition to the timing of our existing backlog in order outlook. We expect that revenues will soften in the second half of fiscal 2001 is new customer orders slow across our core industrial end markets.
We do however, reaffirm our expectation that fiscal 2020 will be a profitable year for Powell.
At this point, we'll be happy to answer your questions.
Thank you ladies and gentlemen.
Good question. Please press star one.
We do have you please limit yourself to one question and one follow up question.
Our first question comes from the line of John Franzreb with Sidoti and company. Please proceed with your question.
Good morning, guys, a surprisingly good quarter.
Alright, Thanks, Don can you talk a little bit about.
The order intake.
April.
Smaller equipment.
Kind of compared to how we place versus March give us some kind of context maybe on.
I would be the trough, maybe a bit but the small order cycle.
John Good morning spreads.
So coming out of.
Second quarter as the global pandemic effects started sorta scattering folks and we were.
Focused on our people around the world has a lot of our customers and suppliers were.
Things soften at the end of March and sort of trailed in April.
A little early to tell exactly how this is going to continue onto the second part of the year.
But definitely softer as we as we came out of the second quarter.
So you still highs incoming small orders in April we did kind of carrying staff that we did yes. There are there are number orders that had momentum.
Being a long cycle business.
And a lot of our projects started.
Even the smaller base disorders, I talk about one to three.
Million dollars in size.
Those start a number of months out six months out and so some of what you find the agenda. The second quarter, just finding signatures people are displace people working from home.
Jack geographically dispersed dispersed so some of that trail off that with some of the reason.
Just a whole host of different things.
That are hitting.
A lot of us in this space and.
Is trying to find people as part of the issue.
Makes sense, but.
The.
On the order intake for the quarter to $300 million.
Excluding the one large industrial order.
What was the balance of the order intake.
Well, John as as we've alluded to on prior calls the deep large order that we booked in we were awarded in January we booked in this quarter.
Collected in the backlog was greater than 100 million is we've communicated were under a strict confidentiality covenant with with our customers. So we're not we're not at Liberty to discuss the specifics of this contract, but as Brad alluded to and we spoke about last call. The our industrial end markets are softening, we we've been seeing that over the last.
Four to six months so.
It is it is dynamic environment out there as we as we work through it.
Yes, when I was what I was going forward there, what's the lawyers expect business ex that one job. So I got it kind of picture of.
Well its normalized order intake, we've been averaging roughly whenever it is 140 million.
According to the last two years.
I would offer this John it's to your point I mean, if you go back.
Two three quarters, we were doing somewhere in the 150 875 million, it's less than that.
Okay. Okay.
Ill get back into queue guys. Thanks.
Thank you once again, ladies gentlemen, my second question. Please press star one on your telephone keypad.
Our next question comes from the line John Kim on Wednesday.
Tony.
Proceed with your question.
Yes, hi, good morning, it's Pete Lucas for John.
Just I guess on the new orders that you are seeing you mentioned still getting some in April and may be too early to comment, but anything you could say about where are you seeing bid margins now versus what is in backlog.
And.
Nothing's really changed in the short term again I think it I think it's a little early.
If I kind of go back a couple of quarters.
We've shared that we've kind of held price.
Throughout most of 19 and into 20.
I think the backlog heading into the change if you want to change that we really seeing a change in the cycle in all signs don't don't look positive.
But the backlog heading in the quality the backlog is very solid.
The trailing orders were getting still reasonable, but looking forward. It would be heavy hard pressed to say that won't be more focus on that as if things start to drive a little bit.
We will be a lot more competition for what's out there.
Okay helpful. Thanks, and also in terms to the existing backlog you mentioned, a few things getting pushed out to the right there and probably impacting I think you set forth in fourth quarter pushing things from this year to next how long do you think that the current backlog should keep you profitable and where do you see holes that you mean.
To fill in for that schedule.
And then also in addition to that you talked about the delays that you mentioned, but have you seen any cancellations in the existing backlog.
Let me, let me take a spread Pete let me take first part on spike to jump in for what I Miss here.
Yes, we have got a number of customers that called over the last six to eight weeks and said Hey, we did make some adjustments again I think a lot of the comments I heard were dispersion of people.
Changes in trying to get folks to site and just planning. So we know that has created some somewhat we had laid in for the fourth quarter is getting pushed out into.
Stretched out into 21.
Over various that it's not all just one a move it two months or one month, it's kind of a variable piece. So it's created a hole.
In the in the fourth quarter. So we have.
Made some some adjustments in the cost structure to account for that here recently.
As far as cancellations no not not really seeing that.
Right now it's been just mostly delays on existing backlog and then just trying to.
Kind of Permira.
John Friends reps question or little early but we're trying to get a feel for what the rhythm will be here as folks are.
Spinning backup in the projects that we had in the funnel heading into this as is the U.S. started locked down the globally started locked down as it starts loosen up a little bit.
Were.
We're looking to see we're all that stands and it's a little early yet here early in the third quarter and.
And Pete This is Mike just a additional color on that with respect to some of the couple specific questions. You had with respect to the exit rate the margin exit rate on our current backlog.
Currently we feel really good about where we are the order books healthy the quality of the customer base in that order booked healthy the terms are decent.
You know what we talked about last call was filling out with some book and bill filling out the second half of the year.
Clearly with the dynamics of Brett just explained stuff pushing to the right and the macroeconomic environment.
We do anticipate a softer second half.
Going into closing up here.
Okay very helpful. Thanks, and last one from me I just trying to put it in context, you mentioned prior downturns is it fair to say that given the backlog you have in hand, and the reduced exposure to upstream compared to the last downturn that you're better insulated now and maybe won't see the same magnitude of impact on revenue as earnings.
This company, but compared to last time when it would come in.
Our feed the spread I think going into the that into this change I would agree that the unknown here is the the lighting. So if you look at the mix.
And overall quality the backlog as opposed to say compared to 16.
As we were rolling into 17, something being are down year on the last cycle.
Definitely a better backlog mix and quality.
The uncertainty here is.
Well, what we're seeing across the globe icon on the demand curve and the supply side and that and then what's playing out there how long will this take so that's a steep thus brought it will watch that closely as we progress next couple of quarters, but.
The sooner certain things get back on track.
Then that'd be good for office.
Great. Thank you guys very much.
Okay.
Thank you ladies and gentlemen.
Yes.
I'm sorry. It appears we do have a follow up from Jon Ferrando. Tony. Please proceed with your question.
Yes, just still got less topic on on the book to bills side of the business can you kind of give it give us some context.
It's the lowest annualized revenue generating from short term booking on billed business kind of put in context.
Yes ill take that one Jan.
If you look back say five years through different cycles, you know the last oil and gas downturn in 15 16 17.
And you look at where we ended our backlog in our exit rate coming into the into the next year and then subsequently what the book and Bill volume of that is.
The first part of that I would range anywhere from as you sit there with our backlog and there's a lot of variables things pushing out to the right et cetera, a lot of different project dynamics, but in general the math would tell you probably 70% to 80% year backlog as you enter years convertible in.
The next year.
And on top of that you'd add anywhere from probably now already.
About 40 million a quarter type of number from a book and Bill standpoint.
Yes.
That's what historical book and Bill let it averages.
And that's it that's what.
What would be the pitch.
Correct.
Go ahead.
So what's what's the trough number in that 40 to 40, just kind of an average per quarter. What's the word you have any sense of the with the worst was no thats. It is a is it.
It ebbs and flows the 40 is essentially about what we did around 15 16, the down the last downturn and okay. During the peak.
In north of that.
Okay.
That's helpful. You said that you.
Conditions get worse, you make since some sort of.
Restructuring actions on cost savings initiatives that are.
I guess more fixed and variable.
Can you kind of actually surprised.
It's coming out of the downturn recently that you have.
Got much room, wiggle room to actually quite fluid, where we've got the site.
Kind of caught me by surprise, yet so John we did in early.
Early may take action both on the.
The fixed indirect structural side of the house, so kind of year indirect pieces in your SGN a.
As well as taking cost out of the American so it really spanned across all elements of business. When you think about that different product lines at different locations. It really was.
From a light initiative, but.
Yes, we we did just recently.
Announced an action.
How much of annual cost savings was that generate.
Yes, roughly it will generate on an annualized basis, probably $5 million to $6 million on the indirect or fixed cost side and about the same on the variable cost side.
And that's an annualized number.
[music].
Great.
Very helpful.
Thank you guys appreciate the color. Thank you John Thanks.
Thank you. My next question comes from your line, John Brad can any capital.
Your question.
Good morning, Brett Mike.
On the on the large project $100 million plus project is there you've done projects like this before often is there anything unusual or different about this project that would maybe heighten the risk profile at all.
Compared to other large projects you've done in the past.
Hey, John spread no.
It's it's a big project for us, but in terms of the makeup is what we would affectionately around power called me imitate as it is it fits us just perfectly and the revenue profile.
Sometimes we see the 50 or 60 million dollar offshore jobs, we always talk about a year and a half this has sort of a three year lay in right now.
So it is it is something that is right up our alley. So okay is the revenue flow more of Oh back half of a three year time horizon or front half or is it equally just.
Across all periods.
No not a back half what you know, but a lot of our project start off a lot of engineering. This one has a lot of engineering school will take some of that here in the second half, but it's it's more we'll see a fair amount next year in a fair amount into the following year. So I'd call. It Kinda 50 50 at this point now that could change, but thats kind of what we're saying.
Please really on schedule, Okay will there be any substantial working capital build to support this project that might a impinge on the sort of the free cash.
Yes, I mean this is Mike.
From a cash flow perspective, you know we've since we booked the order in January Chan, we anticipate upfront.
Front milestones kicking in here in 2020, and we will build working capital next year, but weve.
We've modeled the project such that we're trying to stay cash neutral on this one.
Thank you ladies and gentlemen. This concludes our question and answer segment I would like Jim floor back management for closing comments.
Thank you operator, I would like to thank all of our talented employees for their enthusiasm and accessible exceptional service to our customers. Our second quarter results demonstrate that our teams at Pall are driving to deliver superior execution and also continue to improve our efficiencies throughout our operations.
While we continue to work challenges around factory loading project timing and project mix.
In the fourth quarter of this fiscal year, we believe we are well positioned to deliver on our growing backlog.
Paul continues to be in a strong financial position our balance sheet provides us with significant optionality flexibility and confidence to support the second half of fiscal 2020 and into 2021 with that thank you all for your participation on today's call and we appreciate your continued interest in Powell and look forward to speaking with you next quarter.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.