Q1 2022 Powell Industries Inc Earnings Call
Speaker 1: Good morning and welcome to the Powell Industries first quarter fiscal 2022 results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
Good morning, and welcome to the Powell Industries first quarter fiscal 2022 results conference call. All participants will be in listen only mode should you need assistance. Please signal our conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask.
Speaker 1: To ask a question, you may press star then one on your touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman.
A question you May Press Star then one on your Touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Ryan Coleman. Please.
Please go ahead.
Speaker 2: Thank you, operator, and good morning, everyone. Thank you for joining us for Powell Industries Conference Call today to review fiscal year 2022 first quarter results. With me on the call are Brett Cope, Powell's chairman and CEO , and Mike Metcalf, Powell's CFO .
Thank you operator, and good morning, everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year 2022 first quarter results with me on the call are Brett Cope Powell's, chairman and CEO and Mike Metcalf Powell's CFO .
Speaker 2: There will be a replay of today's call, and it will be available via webcast by going to the company's website, Powell, I nd.com or a telephonic replay will be available until February 16th. The information on how to access the replay was provided in yesterday's earnings release.
There will be a replay of today's call and it will be available via webcast by going to the company's website Powell INV dot com or a telephonic replay will be available until February 16th the information on how to access. The replay was provided in yesterday's earnings release.
Speaker 2: Please note that information reported on this call speaks only as of today, February 9, 2022, and therefore you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading.
Please note that information reported on this call speaks only as of today February nine 2022, and therefore, you're advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.
Speaker 2: 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 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those expressed in these forward-looking statements.
This conference call includes certain statements, including statements related to the Companys 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 expressed 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.
Speaker 2: 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 strategy.
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.
Speaker 2: 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.
Thanks, Brian and good morning, everyone.
Speaker 1: Thank you for joining us today to review Powell's fiscal 2022 first quarter results.
Thank you for joining us today to review <unk> fiscal 2020 to first 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.
Speaker 3: I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions.
It has been a short 60 days since we shared our 2021 full year results in many respects not much has changed over the last several weeks, our first quarter financial performance reflected the usual seasonality and holiday disruption, we are accustomed to seeing at the start of our fiscal year.
Speaker 3: It has been a short 60 days since we shared our 2021 full year results. In many respects, not much has changed over the last several weeks.
Speaker 3: Our first quarter financial performance reflected the usual seasonality and holiday disruption we are accustomed to seeing at the start of our fiscal year.
Speaker 3: It also reflects the more challenging cost environment that has arisen over the past year as we navigate broad inflationary pressures and supply chain challenge.
It also reflects the more challenging cost environment that has arisen over the past year as we navigate broad inflationary pressures the supply chain challenges Nonetheless.
Speaker 3: Nonetheless, we saw further growth in new orders, which marks three consecutive quarters of rising order activity.
Nonetheless, we saw further growth in new orders, which marks three consecutive quarters of rising order activity.
Speaker 3: We continue to experience study levels activity within our industrial market.
We continued to experience steady levels of activity within our industrial markets.
Speaker 3: And while customers as a whole remain tentative and cautious with their capital expenditure plans, we are optimistic that this important market sector, Powell, will continue the steady recovery that started midway through last year.
While customers as a whole remain tentative and cautious with their capital expenditure plans.
We are optimistic that this important market sector. Paul will continue the steady recovery that started midway through last year.
Speaker 3: New orders placed in the first quarter included $122 million of gross new orders partially offset by a $14 million scope reduction on a previously booked project for a total of $108 million of net new order.
New orders placed in the first quarter included $122 million of gross new orders.
Partially offset by a $14 million scope reduction on a previously booked project.
For a total of $108 million of net new orders.
Speaker 3: The customer requested scope adjustment as for a large industrial project previously booked in fiscal 2021.
The customer requested scope adjustment is for a large industrial project previously booked in fiscal 2021.
Speaker 3: The $122 million of gross new orders is modestly higher than the prior quarter and is an increase of 34% from the prior year.
The $122 million of gross new orders is modestly higher than the prior quarter and is an increase of 34% from the prior year.
Speaker 3: Meanwhile, the traction and utility markets in which we compete remain active.
Meanwhile, attraction and utility markets in which we compete remain active.
Speaker 3: and have been strong offsets to these periods of lower industrial market activity.
And had been strong offsets to these periods of lower industrial market activity we.
Speaker 3: We expect to continue in fiscal 2022 our strategy of steady, methodic growth in the utility distribution market in all three of our home markets, which include the U.S., Canada, and the United Kingdom. And for the traction market, we will continue to leverage the strength of technical solutions and proven execution capability.
We expect we expect to continue in fiscal 2022, our strategy of steady methodical growth and the utility distribution market in all three of our home markets, which include the U S, Canada, and the United Kingdom and.
And for the traction market, we will continue to leverage the strength of technical solutions and proven execution capability.
Speaker 3: balanced against prudent commercial risk management in the light and mid-rail projects throughout North America.
Balanced against prudent commercial risk management, and the light and mid rail projects throughout North America.
Speaker 3: In the fourth quarter, our total revenue was $107 million, which was unchanged compared to the prior year.
In the fourth quarter, our total revenue was $107 million, which was unchanged compared to the prior year.
Speaker 3: Within our industrial markets, revenue from our oil and gas sector increased 7% compared to the prior year, while the petrochemical sector increased by 88%.
Within our industrial markets revenue from our oil and gas sector increased 7% compared to the prior year, while the petrochemical sector increased by 88%.
Speaker 3: Taken together, our industrial segment revenue increased by 23% versus the prior year.
Taken together, our industrial segment revenue increased by 23% versus the prior year.
Speaker 3: Revenue from our utility and traction sectors fell by 24% and 15% respectively, as continued activity was overshadowed by a difficult comparable period in the prior year.
Revenue from our utility and traction sectors fell by 24% and 15% respectively.
As continued activity was overshadowed by a difficult comparable period in the prior year.
Speaker 3: Broken down geographically, revenue in the US saw a year-over-year growth of 2%, while revenue in Canada increased 70%.
Broken down geographically revenue in the U S saw a year over year growth of 2% while revenue in Canada increased 7%.
Speaker 3: Where we were less than pleased with the quarter's performance was on the gross margin line, which was 12.6% of revenues in the current quarter, which compares to 17.1% that we reported in the same period one year ago.
Where we were less than pleased with the quarter's performance was on the gross margin line, which was 12, 6% of revenues in the current quarter, which compares to 17, 1% that we reported in the same period one year ago.
Speaker 3: We are beginning to recognize revenue on projects booked in the first half of fiscal 2021 that are presently carrying higher raw material costs, which has created a near-term drag on reported March.
We are beginning to recognize revenue on projects booked in the first half of fiscal 2021 that are presently carrying higher raw material costs, which has created a near term drag on reported margins.
Speaker 3: Our gross margin was also impacted by closeouts, which have benefited us in recent quarters, but did not reoccur in the first quarter.
Our gross margin was also impacted by Closeouts, which had benefited us.
In recent quarters, but did not reoccur in the first quarter.
Speaker 3: higher costs for raw materials, specifically steel and copper.
Higher costs for raw materials, specifically steel and copper.
Speaker 3: continue to present challenges as do higher cost related supply chain bottoms.
To present challenges as do higher costs related to supply chain bottlenecks.
Speaker 3: We remain focused on being engaged with our suppliers and, where possible, passing through inflationary costs.
We remain focused on being engaged with our suppliers and where possible passing through inflationary costs.
Speaker 3: We have and we will continue to remain diligent around our cost structure and protecting our margins to the extent possible.
We have and we will continue to remain diligent around our cost structure and protecting our margins to the extent possible.
On a similar note we are monitoring the tight labor situation that is impacting a diverse range of industries across the economy.
Speaker 3: On a similar note, we are monitoring the tight labor situation that is impacting a diverse range of industries across the economy.
Speaker 3: While the expected upward pressure on wage costs remains an added potential headwind, we have largely been successful working through these challenges across all of our manufacturing operations.
While the expected upward pressure on wage cost remains an added potential headwind we have largely been successful working through these challenges across all of our manufacturing operations.
Speaker 3: but continue watching this closely in order to manage costs and margins looking forward as we plan for future project activities.
But continue watching this closely in order to manage cost margins looking forward as we plan for future project activity.
Speaker 3: Moving to the bottom line, our lower gross profit led to a reported net loss of $2.8 million in the quarter, compared to a net loss of $364,000 in the prior year.
Moving to the bottom line, our lower gross profit led to a reported net loss of $2 8 million in the quarter compared to a net loss of 364000 in the prior year.
Speaker 3: We ended the quarter with $102 million of cash and short-term investments and no debt.
We ended the quarter with $102 million of cash and short term investments and no debt.
Speaker 3: Our net cash position is lower than the prior quarter as we have put our capital to work, while continuing to maintain an incredibly strong liquidity position and balance sheet to which Mike will give some additional details.
Our net cash position is lower than the prior quarter as we put our capital to work, while continuing to maintain an incredibly strong liquidity position and balance sheet to which Mike will give some additional details.
Speaker 3: Lastly, we ended the quarter with backlog totaling $416 million, slightly higher than the $415 million last quarter, and compares to a backlog of $465 million at the end of the comparable period last year.
Lastly, we ended the quarter with backlog totaling $416 million.
Likely higher than the $415 million last quarter and compares to a backlog of $465 million at the end of the comparable period last year.
Speaker 3: Overall, while our financial results remain lower than pre-pandemic levels, we have been encouraged by the momentum we are seeing on a month-by-month basis. We believe our customers are growing incrementally more comfortable around deploying their capital.
Overall, while our financial while our financial results remained lower than pre pandemic levels. We have been encouraged by the momentum we are seeing on a month by month basis. We believe our customers are growing incrementally more comfortable around deploying their capital spending. However, we are a long cycle business, which can sometimes mask, what we believe are encouraging trends.
Speaker 3: However, we are a long cycle business which can sometimes mask what we believe are encouraging trends across the markets we serve.
Cross the markets we serve.
Speaker 3: We continue to see the steady and measured recovery in our core end markets, while our traction and utility markets remain active.
We continue to see the steady and measured recovery in our core end markets, while our traction in utility markets remain active.
Speaker 3: Howl's reputation was built and our excellence continues to be driven by outstanding service and a commitment to innovation.
<unk> reputation was built in our excellence continues to be driven by outstanding service and our commitment to innovation as.
Speaker 3: As the world transitions to an electrified future, I know that Powell will be able to leverage these assets in the new markets and to develop innovative electrical equipment solutions for new problems.
As the world transitions to an electrified future I know that Paul will be able to leverage these assets into new markets and to develop innovative electrical equipment solutions for new problems.
Speaker 3: We remain committed to our R&D spending to develop these solutions organically. We also have optionality to deploy the strength of our balance sheet in order to broaden Powell's product portfolio and diversify our end market mix.
We remain committed to our R&D spending to develop these solutions organically and we also have optionality to deploy the strength of our balance sheet in order to broaden <unk> product portfolio and diversify our end market mix.
Speaker 3: Last quarter, we formally introduced three strategies that outline our focus areas for the future of politics.
Last quarter, we formally introduced three strategies that outlined our focus areas for the future path.
Speaker 3: Our first priority is growing our electrical automation platform.
Our first priority is growing our electrical automation platform.
Speaker 3: We believe that digital technologies like ours will continue to play a larger role in the future of electrical distribution, helping all of our customers achieve higher operating performance from their capital investments.
We believe that digital technologies like ours will continue to play a larger role in the future of electrical distribution, helping all of our customers achieve higher operating performance from their capital investments extending the life of their equipment through predictive analytics and preventative maintenance, while also leveraging this technology to help achieve.
Speaker 3: extending the light of their equipment through predictive analytics and preventative maintenance, while also leveraging this technology to help achieve carbon reduction goals.
Carbon reduction goals.
Speaker 3: We continue to build out our suite of digital asset management sensors and have achieved small but strategically important successes throughout fiscal 2021 as we develop this area of the business.
We continue to build out our suite of digital asset management sensors and have achieved small but strategically important successes throughout fiscal 2021 as we develop this area of the business.
Speaker 3: Building upon our reputable history of electrical automation solutions, our customers will increasingly see our products as integral to the protection and longevity of their capital assets and ultimately their success.
Building upon our reputable history of electrical automation solutions, our customers will increasingly see our products is integral to the protection and longevity of their capital assets and ultimately their success.
Speaker 3: The second of our strategic priorities is our focus on expanding our existing services franchise.
The second of our strategic priorities as our focus on expanding our existing services franchise.
Speaker 3: We plan to take a more selective and high return approach. Rather than building out a global services business that seeks to be all things to all people, we plan to focus our efforts around geographies where Powell has either an existing installed base with a leading market position or around select market sector opportunities where our services can provide differentiated expertise.
We plan to take a more selective and high return approach rather than building out a global services business that seeks to be all things to all people. We plan to focus our efforts around geographies, where Paul has either an existing installed base with a leading market position or around select market sector opportunities, where our services can provide differentiation.
<unk> expertise.
Speaker 3: Ultimately, we aim to move into the optic side of our customer spend through digital offerings that carry subscription-like models, de-risking our financial profile, and creating stickier customer relationships.
Ultimately, we aim to move into the Opex side of our customer spend through digital offerings that carry subscription like models Derisking, our financial profile and creating stickier customer relationships.
Speaker 3: Inorganic opportunities may also play a role here as we seek to bolster our market density where we feel there is a compelling opportunity or where we currently operate but have historically underserved.
Organic opportunities May also play a role here as we seek to bolster our market density where we feel there is a compelling opportunity or where we currently operate but have historically underserved.
Speaker 3: And finally, our third strategic priority is focused on the diversification of our product portfolio through both targeting tangential applications that complement our existing product offering.
And finally, our third strategic priority is focused on the diversification of our product portfolio through both targeting tangential applications that complement our existing product offerings.
Speaker 3: as well as expanding the scope of our product catalog into new electrical technology.
As well as expanding the scope of our product catalog into new electrical technologies.
Speaker 3: These efforts will help to de-risk the business by penetrating new markets that are counter to the cycles of our traditional end markets.
These efforts will help to derisk the business by penetrating new markets that are counter to the cycles of our traditional end markets.
Speaker 3: We will seek to grow in this area both organically through R&D, as well as identifying inorganic opportunities that would be accretive to power.
We'll seek to grow in this area both organically through R&D.
As well as identifying inorganic opportunities that would be accretive to pop.
Speaker 3: As we enter fiscal 2022, our priorities are unchanged.
As we enter fiscal 2022, our priorities are unchanged first and foremost is the health and safety of our employees customers and suppliers.
Speaker 3: First and foremost is the health and safety of our employees, customers, and suppliers.
Speaker 3: Second, we remain focused on maintaining our solid execution performance.
Second we remain focused on maintaining our solid execution performance strong project Closeouts and factory efficiencies as we look to protect our margins and an inflationary cost environment.
Speaker 3: strong project closeouts and factory efficiencies as we look to protect our margins in an inflationary cost apart.
Speaker 3: 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.
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.
Speaker 3: And lastly, as we look over a longer-term horizon, we are committed to thoughtfully executing on our three strategic priorities and updating investors on our progress.
And lastly, as we as we look over a longer term horizon, we are committed to thoughtfully executing on our three strategic priorities and updating investors on our progress.
Appropriately.
Speaker 3: With that, I'll turn the call over to Mike to provide more detail around our financial results.
With that I'll turn the call over to Mike to provide more detail around our financial results.
Thank you Brett and good morning, everyone.
Speaker 3: In the first quarter of fiscal 2022, we reported net revenue of $107 million flat versus the same period in the prior year.
In the first quarter of fiscal 2022, we reported net revenue of $107 million flat versus the same period in the prior year.
Speaker 2: Gross new orders booked for the first fiscal quarter of 2022 was $122 million.
Gross new orders booked for the first fiscal quarter of 2022 was $122 million net new bookings for the first fiscal quarter was $108 million $17 million higher versus the prior year, which reflected a current quarter reduction in net bookings due to a project right.
Speaker 2: Net new bookings for the first fiscal quarter was $108 million, $17 million higher versus the prior year, which reflected a current quarter reduction in net bookings due to a project re-scoping of roughly $14 million.
Scoping of roughly $14 million as.
Speaker 3: As a result, our book-to-bill ratio based upon reported net orders was 1.0 in the period with $416 million of backlog at the end of the first fiscal quarter, which was $49 million lower as compared to the same period a year ago.
As a result, our book to Bill ratio based upon reported net orders was 1.0 in the period with $416 million of backlog at the end of the first fiscal quarter, which was $49 million lower as compared to the same period a year ago.
Speaker 2: Compared to one year ago, domestic revenues were higher by 2% versus the prior year to $82 million, while international revenues were 6% lower compared to the prior year driven by lower project volume in Asia Pacific.
Compared to one year ago domestic revenues were higher by 2% versus the prior year to $82 million, while international revenues were 6% lower compared to the prior year driven by lower project volume in Asia Pacific.
Speaker 3: In total, international revenues were $24 million in the first fiscal year.
In total international revenues were $24 million in the first fiscal quarter.
Speaker 3: From a market sector perspective revenues across our oil and gas and petrochemical sectors were higher by 23% versus the prior year, while utility and traction sectors were lower by 24% and 15% respectively versus the first fiscal quarter of 2021.
From a market sector perspective revenues across our oil and gas and petrochemical sectors were higher by 23% versus the prior year, while utility and traction sectors were lower by 24% and 15% respectively versus the first fiscal quarter of 2021.
Gross profit decreased by 5 million to $13 million in the first fiscal quarter versus the same period, one year ago.
Speaker 3: Gross profit decreased by $5 million to $13 million in the first fiscal quarter versus the same period one year ago.
As a percentage of revenue gross profit decreased by 450 basis points to 12, 6% versus the same period, a year ago, driven in large part by higher raw material costs, which added roughly $2 $5 million of additional cost to the quarter. In addition to a substantially lower value.
Speaker 3: As a percentage of revenue, gross profit decreased by 450 basis points to 12.6% versus the same period a year ago, driven in large part by higher raw material costs, which added roughly $2.5 million of additional cost to the quarter, in addition to a substantially lower volume of project closeouts from back.
Of project Closeouts from backlog.
Speaker 3: Selling, general and administrative expenses were $16 million in the current quarter, lower by $1 million versus the same period a year ago.
Selling general and administrative expenses were $16 million in the current quarter lower by $1 million versus the same period a year ago.
Speaker 3: SG&A as a percentage of revenue decreased to 15% in the current quarter on a lower cost.
SG&A as a percentage of revenue decreased to 15% in the current quarter on a lower cost base.
Speaker 3: In the first quarter of fiscal 2022, we reported a net loss of $2.8 million or a loss of 24 cents per diluted share compared to a net loss of $364,000 or a loss of 3 cents per diluted share in the first quarter of fiscal 2021.
In the first quarter of fiscal 2022, we reported a net loss of $2 8 million or a loss of 24 cents per diluted share compared to a net loss of $364000 or a loss of <unk> <unk> per diluted share in the first quarter of fiscal 2021.
Speaker 3: During the first quarter of fiscal 2022, net cash used in operating activities was $28 million, driven by annual variable incentive compensation, as well as the ongoing buildup of working capital for new projects, as well as the projects currently in the manufacturing stages of production.
During the first quarter of fiscal 2022 net cash used in operating activities was $28 million driven by annual variable incentive compensation as well as the ongoing buildup of working capital for new projects as well as the projects currently in the manufacturing stages of production.
Speaker 3: Investments in property, plant, and equipment totaled $436,000.
Investments in property plant and equipment totaled $436000.
Speaker 3: At December 31, 2021, we had cash and short-term investments of $102 million, compared to $134 million at September 30, 2021.
At December 31, 2021, we had cash and short term investments of $102 million.
Compared to 134 million at September 32021.
Speaker 3: Effective in the first fiscal quarter of 2022, the company held no long-term debt.
Effective in the first fiscal quarter of 2022, the company held no long term debt.
Speaker 3: As we look forward to the remainder of fiscal 2022, we maintain our cautious optimism relative to the continued recovery of our core industrial and market.
As we look forward to the remainder of fiscal 2022, we maintain our cautious optimism relative to the continued recovery of our core industrial end markets.
Speaker 3: Additionally, we remain acutely focused on the supply side macro environment, as well as our internal cost management in order to help negate any ancillary impacts to the commercial landscape with respect to cost and price.
Additionally, we remain acutely focused on the supply side macro environment as well as our internal cost management in order to help negate any ancillary impacts to the commercial landscape with respect to cost and pricing.
Speaker 3: Through these efforts, we do anticipate a continual recovery throughout the remainder of the year as we execute the backlog.
Through these efforts, we do anticipate a continual recovery throughout the remainder of the year as we execute the backlog.
Speaker 3: Our backlog remains very strong while the orders cadence continues to improve compared to the prior year.
Our backlog remains very strong while the orders cadence continues to improve compared to the prior year.
Speaker 3: Considering this, in addition to the strength of our balance sheet, we are well positioned to improve our financial performance as we progress through the remainder of fiscal 2022, while also continuing to focus on our longer term strategic imperatives as Brett has laid out. With that, I will pass it back to Brett.
Considering this in addition to the strength of our balance sheet, we are well positioned to improve our financial performance as we progress through the remainder of fiscal 2022.
While also continuing to focus on our longer term strategic imperatives as Brad has laid out.
With that I will pass it back to Brett to say a few words.
Thanks, Mike.
Speaker 3: I would like to close out our first quarter prepared comments recognizing Tom Powell's upcoming retirement from our board and the legacy that Tom leaves not only at Powell, but across the industry.
I would like to close out our first quarter prepared comments, recognizing Tom <unk> upcoming retirement from our board and the legacy that Tom leaves not only in <unk>, but across the industry.
Speaker 3: Tom began his career with the company in 1964 and will be retiring from the board of directors effective February 16th. Tom's legacy is firmly rooted in our core values by which we have
Tom began his career with the company and $19 64.
And we will be retiring from the board of directors effective February <unk>.
Tom's legacy is firmly rooted in our core values by which we have and we will continue to achieve success.
Customers first.
Speaker 3: respect for our employees. A can-do attitude and the commitment towards continuous improvement will guide our company into the future.
Respect for our employees, a can do attitude and the commitment towards continuous improvement will guide our company into the future.
Speaker 1: Tom, thank you for all of your contributions and support throughout my tenure with Power.
Thank you for all your contributions and support throughout my tenure with Paul.
Speaker 3: And on behalf of the board of directors, the senior leadership team, and the 1900 Powell employees globally, we wish you much health and happiness in your retirement. At this point, we'll be happy to answer your questions.
And on behalf of the board of Directors, our senior leadership team and the 1900 Pollo employees globally.
We issue, we wish you much health and happiness in your retirement.
At this point, we'll be happy to answer your questions.
We will now begin the question and answer session.
Speaker 1: To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster.
To ask a question you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys.
Sorry. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Speaker 1: Our first question today comes from John Brass with Kansas City Capital. Please go ahead.
Our first question today comes from Jon Braatz with Kansas City Capital. Please go ahead.
Good morning, Mike.
Speaker 4: Good morning, John . How are you? Good, good. Going back to the gross margins, obviously, I don't think anybody is really anticipating.
Good morning, Jim how are you good good.
Turning going back to gross margins.
Obviously, I don't think anybody is really anticipating.
Spectacular margins in the quarter given the.
Speaker 4: spectacular margins in the quarter given the rise in cost environment.
The rising cost environment.
Speaker 4: But it seems like, you know, in 2021, you were faced with rising costs, and it seems like something happened here in the first quarter that caused the margin pressure to be even greater. Could you go into a little bit more detail about the drop in margins from, you know, either you want to look at it from the fourth quarter or for the full year last year, it just seemed like it was...
But it seems like.
In 2021, you are faced with rising costs and it seems like something happened here in the first quarter that.
Cause the margin pressure to be even greater could you go into a little bit more detail about.
<unk>.
The drop in margins from either you want to look at it from the fourth quarter.
Or the.
For the full year last year. It just seemed like it was.
Speaker 4: there was something that occurred in the first quarter that might have put some additional pressure on it. And the other question is, I think Mike you mentioned there were $2.5 million in added costs. As you look forward, how do you see the recovery of those $2.5 million in costs?
There was something that occurred in the first quarter that might have.
Put some additional pressure on it and the other question is I think Mike you mentioned, there were $2 $5 million in added costs as U S.
As you look forward, how do you see the recovery of those $2 5 million and costs.
Speaker 3: Yeah, sure, John . So taking your first question on the degradation of the gross margin in the current quarter, really two primary variables. The first is the ongoing inflationary impact of our core input materials, copper and steel. If you took a look at the price increase or the cost increase for us, you would see a decrease in the number of variables that we have in the last quarter. So the first one is the annual inflationary impact of our core input materials, copper and steel. The second one is the annual inflationary impact of our core input materials, copper and steel.
Yes, sure John So taking your first question on the <unk>.
A degradation of the gross margin.
In the current quarter really to two primary variables the FERC.
Ongoing inflationary impact of our our core input materials copper and steel. If you took a look at the price increase for the cost increase for us of those commodities copper over the last 12 months has gone up about 30% steel up about 60% just over over the last year. If you go back.
Speaker 3: of those commodities, copper over the last 12 months has gone up about 30 percent.
Speaker 3: steel up about 60% just over the last year. If you go back even further, it's a little more, it's a little higher than that. But if you think about the long lead nature of our projects, as those commodities are increasing, we are concurrently raising our pricing and our estimating tools, but there is a lag. So-
Even further a little more.
It's a little higher than that.
If you think about the <unk>.
Long lead nature of our projects as those commodities are increasing we are concurrently raising our pricing and our estimating tools, but there is a lag.
Speaker 3: What we are exiting from our backlog today is really projects that we booked in late fiscal 20, first half of fiscal 21, which didn't have the benefit of that incremental price adder from the commodity.
What we are exiting from our backlog today is really projects that we booked in late fiscal 'twenty.
First half of fiscal 'twenty, one, which didn't have the benefit of that incremental price adder from from the commodities. So what we're seeing in this.
Speaker 3: What we're seeing this quarter, probably a little bit of bleed over into next quarter as well, is projects prior to any price elevations due to the commodity. That was really the first headwind facing the gross profit, gross margin.
This quarter, probably a little bit of bleed over into the next quarter as well.
Our projects at prior to any price elevations due to the commodity so.
That was really the first headwind.
Facing facing that gross profit gross margin.
Our scenario for the quarter secondly.
Speaker 3: scenario for the quarter. Secondly, again, if you think about the order cadence that we had in late 20, early 21, the orders cadence was much lower than it has been over the last three quarters anyway. It continues to strengthen. But the number...
Again, if you think about the order cadence that we had in late.
Late 'twenty early 'twenty, one the orders cadence was much lower than.
It has been over the last three quarters anyway. It continues to strengthen but the number of project Closeouts just due to the volume of orders that we booked back in late 'twenty early 'twenty, one much lower than what it is now and that's that's exiting the backlog today. So.
Speaker 3: project closeouts just due to the volume of orders that we booked back in late 2020, early 2021, much lower than what it is now. That's exiting the backlog today. Where we had higher levels of projects exiting backlog prior quarters, we're now in a valley where we don't have that same volume.
Where we had higher higher.
Levels of projects exiting backlog prior quarters. We're now seeing we're now in a kind of a valley, where we don't have that same value.
Speaker 3: So that really impacted gross margin percentages and those were the two things that impacted gross margin this quarter. On the two and a half million...
That's really that really impacted gross margin percentages in those two things that impacted gross margin this quarter and the $2 $5 million.
Speaker 3: You know, we can't control copper prices, we can't control steel prices. We do have mechanisms in place to help mitigate and manage those costs.
We can't control copper prices, we can't control steel prices, we do have mechanisms in place to help mitigate and manage those.
Those costs, but clearly our levers are there really price and overhead costs in the plant. So that's what we're focused on we're focused on things we can control.
Speaker 3: But clearly our levers are they're really price and, and overhead costs in the in the plant. So that's what we're focused on. We're focused on things we can control and managing to the best that we can the items.
Managing to the best that we can.
Items that we can.
Speaker 4: As you look currently at copper and steel
As you look.
Currently copper and steel.
Speaker 4: Are you still seeing those costs increase? And then secondly, as you look at new projects coming on board, new orders.
Are you still seeing.
Those cost increase.
And then secondly.
As you look at <unk>.
New projects coming on board new orders.
Speaker 4: Are you able now to, given the inflationary environment, sort of add the potential surcharge into the business, into the orders to protect you a little bit better against inflationary costs?
Are you able now to given the inflation inflationary environment sort of.
AD.
Potential surcharge into into the business into the orders.
To protect your a little bit better against inflationary costs.
Speaker 3: The first question, copper has leveled off over the past probably six months. It's stabilized into the mid 450 a pound. Steel has really gone quite high. We use a lot of steel as you can imagine. It's softened a little bit. I'm not a commodities trader, but I can't imagine steel would go...
Yes.
First question copper has leveled off over the past probably six months, it's stabilized into the.
Mid mid four $4 50, a pound steel has really gone.
Quite high and we use a lot of scale as you can imagine it's softened a little bit.
So I don't.
I'm not a not a commodities trader but.
I can't imagine steel would go.
Speaker 3: to the extent that we saw previously. From a pricing standpoint, again, we've taken and incorporated the commodities increases in our estimating models. There is a lag just due to the lead time of our products. We are transitioning those costs into our estimating models.
To the to the extent that the increases to the extent that we saw previously.
From a pricing standpoint, again, we've taken and incorporated the commodities increases in our estimating models. There is there is a lag just due to the lead time of our products, but yes. We are we are.
Transitioning those costs into our estimating models.
Alright, Thank you very much.
Okay.
Speaker 1: Again, if you'd like to ask a question, it is star then one. Our next question will come from John Franser with Sidonian Company. Please go ahead.
Jan if you'd like to ask a question. It is star then one.
Our next question will come from John <unk> with Sidoti <unk> Company. Please go ahead.
Speaker 5: Good morning, Britain. Mike. Thanks for taking my questions. First, I'd like to say congratulations to Tom on his retirement. He was 9 years old when his letters came out that day.
Good morning, Mike Thanks for taking my questions.
First of all I can say congratulations to Tom on his retirement.
Speaker 5: always fun to work with over the past, you know, whatever it is, 15, 16 years.
Always fun to work with over the past.
It is.
16 years.
Speaker 5: Going back to the gross margin question, I guess two parts I want to follow up on. First, can you talk a little bit about the competitive landscape? Is everybody raising prices? Is it becoming easier to put those price increases through? Is the bidding activity becoming a little more...
Going back to the gross margin question I guess two parts I wanted to follow up on first can you talk a little bit about the competitive landscape is everybody raising prices is it becoming easier to put those price increases through the bidding activity is becoming a little more.
Speaker 5: compliant as far as The customers taking the price increases on the job is relative to what they're doing maybe say six months ago
And as far as.
The customers taking price increases on the jobs relative to what they are doing maybe say six months ago.
Speaker 3: I'll take that first one, John's Brett. Maybe a little bit. I think last quarter, last two quarters, we were asked about price and we indicated in the second half of the calendar year last year, we started to see increasing levels of price.
I'll take that first one Johns Brett.
Maybe a little bit I think last quarter last two quarters, we were asphalt pricing, we kind of indicated in the second half of the calendar year last year, we started to see increasing levels of price competition.
Speaker 3: I can't say that that has relented. I think people, because their recovery is still sort of slow and methodical on the industrial side, there is a fair amount of price competition still. But where we are seeing opportunity is on the logistics side, there are a rash of shortages, which is also a cost impact for Powell. But there is opportunity where under the things that we control, our products that we manufacture, on the medium voltage side, especially in the substations, we are able to command a little better price.
I'm not I can't say that that has relented I think people because of the recovery still sort of slow and methodical on the industrial side. There is a fair amount of price competition still.
But where we are seeing opportunity is on the logistics side. There are a rash of shortages, which is also a cost impact for Paul but there is opportunity where under the things that we control our products that we manufacture on the medium voltage side, especially in the Substations, we are able to command a little better price on.
Speaker 3: on those things on our supply chain where we have control, we're still pretty confident in our abilities in the North American anti-market and we are having some opportunity.
Those things are on our supply chain, where we have control we're still.
Pretty confident in our abilities in the North American E&C market and we are we are having some opportunity upside there.
Speaker 5: Have you changed your buying patterns as far as buying steel, locking in pricing earlier, as soon as you get the job so they're not as exposed?
Have you changed your buying patterns as far as buying steel locking in pricing earlier as soon as you get the jobs as exposed.
Speaker 3: Yeah, John , we are in fact, you know, we do see a little bit of cash usage in our inventory as we lean forward and secure, not only copper and steel, but some of the you know, some of the ancillary parts that are critical to our products, where we see shortages, the supply chain sees shortages, we will lean forward and make sure we don't have a manufacturing Sak Klancey here at the
Yes, John we are in fact.
You do see a little bit of cash usage in our inventory as we lean forward and secure manner.
Not only copper and steel, but some of the some of the ancillary parts that are critical to our products, where we see shortages of supply chain change these shortages.
We will lean forward and make sure we don't have a manufacturing disruption.
Speaker 5: Less easier to work with is labor cost increases. How has that impacted the gross margin?
Okay.
The less easy to work with us labor cost increases how has that impacted the gross margin.
Speaker 3: At present, we really haven't had a material impact on margins with respect to labor. We are watching it closely. We do anticipate, given the macro environment, that that will be a variable that we have intervals for ourselves, the labor.
At present really haven't had a material impact on margins with respect to labor. We are watching it closely we do anticipate given the.
The macro environment.
That will that will be a variable that we have to manage.
Speaker 3: Availability, as we noted in the prepared comments, it is something we watch. It is different location to location. We do see it. As I noted, we are working our way through it, so it is not without challenge.
Availability as we noted in our prepared comments or it is something we watch it as it is different location location, we do see it and as I noted we can we're working our way through it. So it is not without challenge but.
Speaker 3: yet become a program or a factor we haven't been able to overcome, but it is something we're watching.
It has not become a program.
In fact that we haven't been able to overcome but it is something we're watching closely.
Speaker 5: Okay. So is it fair to assume that this is a low point in the gross margin profile since the one the jobs you're running through are the ones you're kind of caught unawares of? Or do we still have another gross margin that might actually be below this one?
Okay.
So is it is it fair to assume that this is the low point in the gross margin profile since the jobs you want me to with once you kind of caught unawares.
Or do we still have another.
Gross margin should be below this one.
I mean.
I don't.
Look I think the commodities as we look at Catherine steel as I alluded to John <unk> question.
Speaker 3: Look, I think the commodities as we look at copper and steel, as I alluded to John Brotz's question, if we buy forward, we buy at the best price we can get. The pricing that we incorporated in our tools mid last year should be, we should start seeing that bleed through the system mid year this year.
If we buy forward we buy at.
At the best price, we can get the pricing that we incorporated in our tools mid last year should be we should start seeing that bleed through the system mid year. This year. So.
Speaker 3: you know we're positioned to as I said in my prepared comments we're positioned to improve our financial performance and that's what we would end
We're positioned to as I said in my prepared comments, we're positioned to improve our financial performance and Thats, what we would anticipate.
Okay fair enough and on the revenue side.
Speaker 5: Okay, fair enough. And on the revenue side, Brett, when you're talking about improving incoming bookings profile, when you look out, say, six months, where do you think the bookings profile would be the most favorable and the way you're most concerned about six months from now?
You're talking about improving incoming bookings profile.
When you look out say six months, where do you think the bookings profile would be the most favorable and we are most concerned about six months from now.
Yeah.
Speaker 3: A lot in that question, John . I still think that we'll be talking about this methodic recovery, the industrial market. As you know, we saw it in our business mid last year. It has continued through the back half.
A lot in that question John .
Well I think that we'll be talking about this methodical recovery of the industrial market.
As you know we saw it in our business mid last year. It has continued through the back half of <unk>.
Speaker 1: 2021 and no big change in the last 60 days.
71, and no big change in last 60 days.
Speaker 1: The part that I'm probably still most concerned on in industrials are the large projects. When will we actually see...
The part that Im probably still most concerned on the industrials are the large projects when would we actually see.
Speaker 3: global economic demand drive what appears to me an improving economic situation for some really good investments in the states, especially in the Gulf Coast. But while we continue to actively work with our engineering partners and end clients on those jobs, there's still uncertainty about what actually
The global economic demand dry what appears to me and improving economic situation for some really good investments in the state, especially in the Gulf coast, but.
While we continue to actively work with our engineering partners and end clients on those jobs or there is still uncertainty about what actually.
Speaker 3: when the return gets to the point where they'll pull the trigger. So that uncertainty in the timing of those larger jobs...
When the return we get to the point, where they will pull the trigger so that uncertainty of the timing of those larger jobs.
Speaker 1: that is probably my biggest concern six months out.
It's probably my biggest concern six months out I think.
Speaker 3: Meanwhile, utility distribution market that has been, you know
Meanwhile, utility distribution market that has been.
Speaker 3: Pretty decent market for us in the US and Canada continues. Traction becomes, we self-constrain traction just because.
A pretty decent market for us in the U S and Canada continues traction become self constrained traction just because.
Speaker 6: There's just different contracting environment there with all the different levels.
There's just different contracting environment, there with all the different levels of levels.
Speaker 6: levels and we continue to make progress on new market activity, which we are seeing through new channel development.
And we continue to make progress on new market activity.
Which we are seeing through through new channel development and OEM channels that we support out in the market.
Speaker 5: All right, and one last question and I'll jump back into queue. You talk about as far as your strategic priorities, one of them is expanding your services business. Can you kind of give us a up to date, where are you as far as how much service revenue in the P&L and what you think is a reasonable target say two years from now?
Alright, and one last question and ill jump back into queue.
Can you talk about as far as your strategic priorities. One of them is expanding its services business can you kind of give us a.
Up to date.
As far as how much service revenue in the P&L and what you think is a reasonable target say two years from now.
Okay.
Speaker 6: So I'm not ready to kind of lay out a target yet because it's not a reportable segment. Our first goal is to get service into a true aftermarket reportable segment. It is, as you know, it's pretty closely attached to the equipment life, 12 to 18 months after reinstall.
So I'm not ready to kind of lay out a target yet because it's not a reportable segment. Our first goal is to get service into a true aftermarket reportable segment. It is as you know it's pretty closely attached to the equipment like 12 to 18 months after we install.
<unk>.
Speaker 6: We are working through our leadership team. You know it.
We are working through our leadership team.
Got it.
Speaker 6: Service as a whole when you include all of the other parts, which is parts business and other things that are kind of in that first 12 to 18 months can be as much as 20% of our total revenue. But what we want to do is first establish a...
Service as a whole when you include all of the other part which is part of our business and other things that are kind of in that first 12 to 18 months.
Can can be as much as 20% of our total revenue, but but we want to do is first establish.
In select markets, both in the industrial base or in certain geographies, where the.
Speaker 6: in select markets both in the industrial base or in certain geographies where this engineered obsolescence is one area that you'll hear us talk about in the future. We've got some really good examples that have underpinned the strategy where we go into a...
Engineered obsolescence is one area that you'll hear us talk about in the future. How can we have got some really good examples.
That have underpinned the strategy, where we go into.
Speaker 6: and a client that we know really well. And they want to extend for various reasons, their installed base, CapEx that they put in 20, 30 years.
And it's a client that we know really well and they wont extend for various reasons their installed base.
Capex that they put in 2030 years ago.
Speaker 6: The engineering strength of POW, we should be able to leverage and build that where we can go in and design a custom breaker or a custom low voltage motor control bucket and put it in the existing infrastructure. So they don't have to pull out and rip out all of that metal and wires. They can take advantage of new technology, new components, and extend the life of that in another 10 to 20 years. It's those things that your Harris talked more about in the coming...
The engineering strength of how we should be able to leverage and build that where we can go in and if it does that design, a custom breaker or custom low voltage motor control.
The bucket and put it in the existing restructured so you don't have to pull out rip out all of that metal and wires that can they can get it.
Advantage of new technology, new components and extend the life of that another 10 to 20 years.
It's those things that you'll hear us talk more about in the coming in the coming quarters.
Speaker 5: Okay, got it. Thanks for the color. I'll get back to you guys. Thank you very much.
Okay. Okay got it thanks for the color I'll get back to you guys. Thank you very much.
Speaker 1: The next question comes from John Bayser with Pinnacle. Please go ahead. Good morning, everyone. Thanks.
The next question comes from John <unk> with clinical please go ahead.
Good morning, everyone. Thanks for taking my questions.
Speaker 7: I was just curious for the three strategic initiatives, were there any
I was just curious.
For the three strategic initiatives or are there any.
Speaker 7: extra costs that were recognized there that perhaps weren't there a year ago. I know this R&D went up a bit but could you tell us it?
Extra cost recognized there that perhaps weren't.
<unk> there a year ago that is R&D went up.
But.
Could you tell us.
Are there additional costs that were not there a year ago for those strategic initiatives.
Speaker 6: John , no, not in the most recent quarter. It is foreseeable that in the future, although it won't be in the next quarter or two, that we
John No not not in the most recent quarter.
It is foreseeable that in the future, although it won't be in the next quarter or two that.
We.
Speaker 6: think about raising that portion of the R&D spend to accomplish a strategic goal. We started on that path a couple of years ago. I came out early in the year and talked about Target. We ran into a technical challenge and had to re-
Think about raising that portion of the R&D spend to accomplish a strategic goal.
We started on that path a couple of years ago I came out.
Early in the year and talked about target, we ran into a technical challenge and had to re.
Retool our plan there.
Speaker 6: retool our plan there. We are working on that now. So when we get to that point, I'll definitely talk about it in advance of doing so, but not...
We are working on that now so.
When we get to that point I will definitely talk about it in advance of doing so.
The most recent quarter.
Speaker 7: Okay, so none of the R&D increase was related to the strategic initiatives.
Okay. So none of the R&D increase was related to the strategic initiatives.
This quarter not not directly I mean, there are I alluded last call in December there are some things that we're doing on allocating just typical R&D money, but we've not we've not taken a.
Speaker 6: quarter? Not directly. I mean there are, I alluded last call in December , there are some things that we're doing on allocating just typical R&D money, but we've not taken a step that I can say is tied to that.
A step that I can say is tied to that as of today.
Speaker 7: That would be in the RD line. Yeah, fair enough. What level of revenues does service have to get to for it to be a disclosable segment of the total revenue base? contemplating an upgrade during investors cyclical
In the R&D line.
Fair enough.
Level revenues service have to get to for it to be a disclosed a whole segment of the total revenue base.
15.
Okay.
Speaker 6: I think that if we could sustain an aftermarket, again, not tidy the equipment life of the 12 to 18 months in excess of 10%, I think that we'll be challenged not to make a report.
I think that if we could sustain in aftermarket again not side of equipment life of the 12 to 18 months in excess of 10% I think that we will we will be challenged not to make a reportable segment.
Hi.
Our accounting team, okay, Okay, and I guess finally, what do you refer to project Closeouts being less this quarter than a year ago, what exactly are you referring to.
Speaker 7: And I guess finally when you refer to project closeouts being less discordant than a year ago. What exactly are you referring?
Speaker 6: Some of that is what Mike indicated earlier on in one of the questions. It's some of the timing of the size of projects that we were taking at the end of 20 and the first part of 21. And some of it is also a little bit mixed in there with mix and timing, just logistical challenges, not being able to close out certain jobs.
Some of that is.
Mike indicated earlier on in one of the questions.
Some of the timing of the size of projects that we were taking at the end of 'twenty and the first part of 'twenty, one and some of it is just a lot of it is also a little bit mixed in there with mix and timing.
Logistical challenges not being able to close out certain jobs.
Speaker 6: So they're holding over an extra month or two for shortages or all the above economy challenges right now.
So theyre holding over an extra month or two for sure.
Georges or all of the above economy challenges right now so just just not enough.
Speaker 6: We typically have a pretty steady cadence of closeouts when we're running a good mix of business, and we just didn't see that in Q1. OK, out.
We typically have a pretty steady cadence of closeouts and when we're running.
A good mix of business and we just didn't see that in Q1.
Okay I understood Okay.
Good luck.
Speaker 1: At this time, there are no further questions, so this will conclude our question and answer session. I would like to turn the conference back over to Brett Cope for any closing remarks.
At this time there are no further questions. So this will conclude our question and answer session.
I'd like to turn the conference back over to Brad Cooke for any closing remarks.
Speaker 6: Thank you, Grant. While the global economy remains challenged by lingering uncertainties brought on by the ongoing global pandemic, the subsequent significant rise in inflation and logistic challenges, and the added burden of labor availability, Powell has weathered these conditions in the past, and we are well positioned to persevere through these challenges and emerge stronger in the future. Let's drink.
Thank you grant.
While the global economy remains challenged by lingering uncertainties brought on by the ongoing global pandemic. The subsequent significant rise in inflation and logistics challenges and the added burden of labor availability. Paul has weathered these conditions in the past and we are well positioned to persevere through these challenges and emerge stronger in the future.
<unk> is our people.
Speaker 6: an incredibly talented team who underpin our operational strength across all of our manufacturing.
An incredibly talented team who underpin our operational strength across all of our manufacturing facilities. We are supported by a healthy backlog and a strong balance sheet and great relationships with our customers and suppliers. Additionally, we are focused on advancing our efforts in new and encouraging growth opportunities that will better diversify our backlog and project mix going forward.
Speaker 6: We are supported by a healthy backlog, a strong balance sheet, and great relationships with our customers and suppliers.
Speaker 6: Additionally, we are focused on advancing our efforts in new and encouraging growth opportunities that will better diversify our backlog and project mix.
Speaker 6: 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 for the next session.
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.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 1: conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Speaker 1: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
The conference has now concluded.
Thank you for attending today's presentation you may now disconnect.