Q2 2021 Powell Industries Inc Earnings Call
Good day.
And welcome to the Powell industries second quarter fiscal 2021 results earnings Conference call.
All participants will be unless only non sitting on the assistance. Please signal a conference specialist R. Preston Starchy followed by this year.
After today's presentation there'll be an opportunity to ask questions.
Just a question on your press Star then one on your telephone keypad.
With charter your question please.
As far as them too.
This event is being recorded.
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Bryan. Please go ahead.
Thank you operator, and good morning, everyone. Thank you for joining us for Powell Industries Conference call to review fiscal year 2021 second quarter results with me on the call are Brett Cope Powell's chairman and CEO and Mike Metcalf Powell CFO there'll be a replay of today's call and it will be available.
Via webcast by going to the company's website Powell I and the dot com or a telephonic replay will be available until may 12, the information on how to access. The replay was provided in yesterday's earnings release. Please note that information reported on this call speaks only as of today may five 2021, and therefore, you're advised that any time.
Sensitive information may no longer be accurate at the time on replay listening or transcript reading.
This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 <unk>.
Investors are cautioned that such forward looking statements involve risks and uncertainties and 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 with that I'll now turn the call over to Brett.
Thank you Ryan and good morning, everyone.
Thank you for joining us today to review power fiscal 2021 second quarter results.
I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions.
Our second quarter results were mix relative to our expectations revenues for the quarter improved to $119 million, an increase of 11% sequentially over our first quarter.
I would note that this growth was achieved in spite of a challenging operating environment that we continue to experience across our industrial markets.
As well as the adverse impact of severe winter storms in Texas.
During the months of February that's the majority of our Houston based teams for nearly a week.
Compared to the prior year second quarter revenues were down 22%.
Mainly driven by lower revenue from the petrochemical sector, which was down <unk> 78 per cent compared to the second quarter of fiscal 2020.
Oil and gas was down 3% year over year, while utility and municipal markets, which include traction grew by 17% and 9% respectively compared to last year.
This marks another consecutive quarter of year over year growth in these segments, partially offsetting softness across the industrial sectors.
Second quarter gross margin as a percentage of revenue was 14, 4%.
Which compares to 19, 6% one year ago.
The year over year decline was mainly the result of underutilized overhead on the lower revenue.
As well as raw material cost pressure.
From higher copper prices and other industrial metals.
These headwinds were partially offset by the restructuring activities taken in the third quarter of fiscal 2020.
We continue to prudently manage discretionary expenses.
And are also closely monitoring our cost structure to ensure that we are aligned with the current environment.
We are a long cycle business and it is imperative that we retained the domain expertise and knowhow, maintaining our capabilities and readiness to serve for the eventual recovery of our major end markets.
Moving to the bottom line, we were slightly below breakeven as we reported a net loss of $225000 in the quarter compared to net income of $7 $4 million in the prior year.
The decline was the result of lower operating earnings driven by the decrease in revenues and gross profit amidst an environment of lower new orders in adverse market conditions.
We ended the quarter with $154 million of cash and short term investments and essentially zero debt.
As we retained our strong liquidity position.
<unk> continued to have optionality as we manage through this down cycle.
New orders from the second quarter totaled $89 million.
Compared to $91 million of new orders in the first quarter of 2021.
And $301 million on new orders in the second quarter of fiscal 2020.
The $301 million of.
New orders during the comparable period of the prior year was a true.
<unk> the large industrial award book and reported in the second quarter of fiscal 2020.
We ended the quarter with backlog totaling $437 million, which represents a sequential decline of 6%.
That compares to $566 million as of the end of the second quarter last year.
The industrial markets, where we compete continues to be characterized by limited customer visibility on capital spending.
As well as project delays.
We are now more than one year since the pandemic hit and began impacting our end markets and while conditions have started to improve our industrial end market customers remain cautious.
They evaluate future capital investments.
Notwithstanding this I am pleased with the level of execution across the company.
We have a strong focus on driving efficiencies on project execution, while identifying accretive growth opportunities as we continue to work closely with our customers to adapt to the current environment on both.
Responding quickly to any request to changes to ongoing work currently in our backlog, while also providing the needed support they required for future capital spending plans.
Looking forward as the energy complex across the globe transitions to a cleaner future.
Continue to believe the economics of natural gas will offer favorable opportunities in the LNG gas pipeline and gas chemical process industries.
We also see developing opportunities in the renewable markets of hydrogen.
Biofuels biofuels biodiesel as well as carbon capture and sequestration.
These markets are more nascent but are growing.
We are also closely monitoring possibility of tightened environmental regulations that may require additional investment in existing infrastructure.
We possess a leading reputation in operating history that differentiates Paul from a customer service and technological perspective.
Our financial position enables us to maintain our strength right now.
To get through these challenging economic cycles.
We have continued to build long and valued relationships with our customers and we believe that these core elements of our foundation remains solid and important attributes as we aspire to be the partner of choice for critical electrical infrastructure delivered on time and on budget.
Before I turn the call over to Mike I'd like to reiterate our key focus areas for fiscal 2021.
First and foremost is the health and safety of our employees customers and suppliers.
We are also focused on maintaining our solid execution performance to ensure that we continue to meet the high expectations stakeholders have a policy.
Next is the continuous evaluation of our current cost structure supply chain and resource planning to optimize operations across the geographies and markets that we serve.
And lastly, it is also critical that we continue to lay the foundation for future growth opportunities.
Ill also broadening the markets for power.
Our human capital balance sheet strength and technological expertise allow us to be proactive in the current environment.
With that I'll turn the call over to Mike to provide more detail around our financial results before we take your questions.
Yeah.
Thank you Brett and good morning, everyone.
The challenging macro environment that we've experienced throughout the past year, particularly across our core industrial end markets continues to play out as the new order intake remains relatively flat across the last few quarters.
New orders for the second fiscal quarter totaled $89 million. This was lower by $3 million sequentially and 71% lower versus the second fiscal quarter of 2020 as the prior year comparison includes the large industrial order that we booked in fiscal 2020.
Revenues for the second fiscal quarter of 2021 were 119 million higher sequentially by 11%, but lower versus the prior year by $33 million is the trailing 12 months orders cadence across our oil and gas and petrochemical end markets and the associated impact on backlog.
Continues to adversely affect revenue.
Our second quarter, ending backlog was $437 million. This.
This is lower by $28 million sequentially and $130 million lower versus the prior year on the challenging comparison that I just noted.
But overall healthy from a historical perspective.
The book to Bill ratio for the second quarter was 0.7 times <unk>.
Impaired to one year ago domestic revenue decreased by $33 million or 27% to $88 million, while international revenues were 2% higher on a year over year basis to $31 million.
This overall decline, particularly in our domestic industrial markets reflects the ongoing uncertainty across the oil gas and petrochemical end markets.
From a market sector perspective revenues across our oil and gas and petrochemical sectors were lower by 39% versus the prior year on.
Alternatively versus the same period, one year ago oil and gas was down 3%, while our petrochemical end markets was lower by 78% <unk>.
Providing a modest offset the utility sector was higher by 17%, while traction volume experienced a 9% increase versus the second fiscal quarter of 2020.
Gross profit in the second quarter of fiscal 2021 decreased by $13 million or 510 basis points as a percentage of revenue versus the prior year and down sequentially 270 basis points.
The pressure on margins in the second quarter was primarily driven by lower volume and unfavorable leverage across our underutilized operating facilities as well as increase in commodity prices.
Selling general and administrative expenses were $17 million from the current quarter $2 million lower versus same period, a year ago and flat sequentially.
SG&A as a percentage of revenue was 14%, which compares to 12% on the prior year and 16% sequentially.
In the second quarter of fiscal 2021, we reported a net loss of $225000 or a loss of <unk> <unk> per diluted share compared to net income of $7 $4 million or <unk> 64 cents per diluted share in the second quarter of fiscal <unk>.
20.
During the second quarter of fiscal 2021, net cash generated from operating activities was $7 million driven by the increased focus on working capital as we continue to execute and plan for projects currently in backlog.
Investments in property plant and equipment for the quarter was $662000.
At the end of our second fiscal quarter, we had cash and short term investments of $154 million $33 million higher than a year ago and $25 million lower than our fiscal 2020 year end position.
Long term debt, including current maturities was $400000.
Looking forward, we expect that our operating environment will remain challenged throughout fiscal 2021, particularly across our industrial end market.
Considering this we continue to manage our liquidity position and operating cost very diligent.
Our balance sheet remains extremely strong generating an additional $6 million of free cash flow during the second fiscal quarter.
As Brett mentioned and a key tenant of power. We are working closely with many of our customers to accommodate their project schedules, which in turn may create some choppiness across our quarterly landscape and into fiscal 2022.
Considering this we anticipate that our second half will have a similar or slightly favorable trajectory versus the first half as we navigate through the commercial uncertainty persisting across our industrial end markets, while closely managing the cost and cash equation.
In closing our backlog is healthy our fundamentals are solid and our strategy of maintaining ample liquidity through this downturn to sell.
At this point, we'll be happy to answer your questions.
We will now begin the question and answer session question. You May Press Star then one on your telephone keypad curious on speakerphone. Please pick up your handset before pressing on Gs.
The majority of your question please per store.
Once again as requests from answered please hold the one question on one follow up.
At this time, we will partner on tailoring momentarily to assemble on Ross.
And our first question comes from John trends.
From Sidoti and company. Please proceed.
Good morning, Brett.
Alright.
<unk>.
Good good.
I guess I want to start with the quarter in and of itself you shut down for a week.
Was there any lost or deferred revenue as a result of those shutdowns are pushed EBIT into quarter or that you missed out on entirely.
Quantifying the impact on the call.
Yeah.
Yes.
Hey, Jim This is Mike.
<unk> estimated that to be between two and $3 million on revenue for those essential was up four days.
Which Eric which carriage.
Roughly half a million dollars of margin.
So it did definitely have an impact.
Some of that some of that revenue for example, a field service revenue some of it may not it wasn't necessarily a push out and they have been lost but a lot of it was.
On a shop work to GAAP will be pushed out and recognize later.
Okay.
Alright.
And I'm just curious about the order book.
And what you're seeing as far as quotation activity.
Is there been a change in the tempo.
People.
Shifting around a little bit more than they were three months ago.
Or is it still an environment where everybody's risk.
Yeah, Josh Brett.
And the most recent quarter I think in a couple of other calls we've talked about.
Looking out the next couple of quarters.
On the tariffs conversation you and I had.
We expect it to continue to kind of move to the right. There is this uncertainty kind of overhang. So I'd say that still is what we see looking out the most recent quarter.
I'll, let you comment about sniffing, there was a little bit more activity on it.
Popped up popped down.
So it was even with the with the winter storm.
I think the inquiry level there was.
With short term urgency sort of crept in.
But I can't say.
On another quarter on that ICD fundamental change to what we talked about last quarter horizon still looks on certain out a couple of quarters I think my comment about the potential too.
To rise above the run rate since the pandemic hit is there but.
Yes.
To say it is going to sustain and start heading into <unk>.
Positive direction over time, I still can't say that sitting here today.
Okay and the <unk>.
Triste of management's request I will get back into queue.
Okay. Thanks.
As a reminder, if you have a question. Please press Star then one.
Yes.
Next question is coming from John Brian with Kansas City Capital John. Please proceed.
Morning, Brett Mike.
Thanks, Laura.
Pretty good pretty good Brett question. When you look across your landscape of end markets and you talked about the weakness in the industrial markets.
Is there is there.
Something out there that might give you a sort of a leap b a leading indicator of.
On a turn in the trends and is her up.
Particular, you know I guess, a particular signal that something that would signal to you that.
We're at the bottom and we're beginning to turn up and and and and the better days are ahead as or is there something out there that.
Might be that's a signal for you.
Hmm.
John.
Tuning to read and look across the world, making sure that our teams are as engaged as we need to be reading over.
Reading the space I think the fundamentals of the gas market as Ive talk really over the last year year and a half continues to be to be one of the still the economic indicators that with the cost of the raw materials, knowing what's out there what's being planned it still driving a lot of potential.
Projects that I think will eventually materialize.
That macro consumption of what triggers that still unclear and I don't see anybody being able to pinpoint that book we are.
Pushing on our teams too as the world is getting going again, I can say that today's call.
Are all back traveling customers are still a little bit hesitant to receive.
Personal person, but I'd say theres more activity today than it was just a quarter ago. So that's that's encouraging but I can't say I can give you that that trigger other than the fundamental the economics look solid and I just think it's that mass consumption of what are they going on have confidence to pull the trigger on the large capex.
So you see a lot of things going on we're watching net gas market.
On the chemicals.
That's still a pretty interesting space as well as just core LNG projects that are still kind of building I don't think they're all going to go but there are fundamentals look good for landed price at some of these should go.
Okay. Okay.
Have you been able to secure any any.
Any business any contract awards with let's say.
Some of those alternative energy projects biodiesel hydrogen or anything out there of being awarded.
We have and in fact on the most recent quarter.
We had some awards.
We were successful on some and not successful and a few others.
In that.
Non conventional conversion of diesel.
And there is some we're going right now.
So that's been that's been a nice win as well as the sustained.
On utility and traction from those those of those are picked up.
Relative to the mountain study so okay, alright sounds good thank you very much Brett.
You bet.
Your next question comes from John's furniture on the <unk> company.
Please proceed.
Yeah, I just wanted to maybe talk a little bit commentary you said that your total was.
Up in the quarter.
That's kind of.
What day.
We're hearing some other companies, it's a lot of crews out there and they were kind of bemoaning net.
Please see our utility business.
Can you kind of delve into that a little bit.
So.
From a revenue standpoint, and from an order intake standpoint, John.
It's a little bit of math with a lower revenue would kind of rises up with it.
With the slowdown, especially in the petrochemical rich.
Report on drop on revenue year over year, but the distribution market on the utility side has really a couple of weeks ago, then on overall better market for us from the states and then Youll recall in Canada. They never really recovered from the 16 to 17 on our core markets like we saw on in the states.
And so we were forced to accelerate our strategy as we kind of went in West Canada.
We were getting candidates.
Geographically speaking last couple of quarters actually but highlights from the business.
A lot on it is supported by our diversification into other markets like utility distribution in the East Canada.
Okay.
And when you can you just maybe talk a little bit about the competitive landscape given the marketplace.
How aggressive is the pricing environment, what are you seeing out there or people being more disciplined.
Aye.
For sure we talked about this last call.
I think I indicated in February.
We saw a little bit of increase.
I don't want to say it was a step change, but I'd say.
It moved up a notch on competitiveness over the last 90 days.
So it definitely is.
I made a comment here to Mr brought you a minute ago about win some lose some.
We are full phase of the team on every job in looking at this.
It's getting more competitive definitely took a step up this past quarter.
Okay Alright.
Alright.
That's all I had Brett how.
Hey, Jeff.
This concludes our question and answer session. At this time I would now let's turn it back to Brookdale for any closing remarks.
Thank you operator, the continued uncertainty in our core end markets as well as the long cycle nature of our business continued to challenge our ability to efficiently plan on resources.
And as such impact our financial results. However, we continue to benefit from a very strong and committed team of employees across the company.
On balance sheet, and a robust backlog that will allow us to endure the current environment.
As we have in the past cycles during our 75 year history.
We remain focused on identifying new commercial opportunities for our solutions that will better for sapphire backlog and product mix going forward.
With that thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking with you all next quarter.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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