Q4 2023 Powell Industries Inc Earnings Call

December 6, 2023

Operator: Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: 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. To ask a question, you may press the star key, then one on a touchtone phone.

Operator: 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, Investor Relations. Thank you. You may begin. Thank you, and good morning, everyone.

Ryan Coleman: Thank you for joining us on the POWL Industries conference call today to review fiscal year 2023 fourth quarter and full year results. With me on the call are Brett Cope, POWL's Chairman and CEO, and Mike Metcalf, POWL's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until December 13th. The information on how to access the replay will be provided in yesterday's earnings release.

Ryan Coleman: Please note that the information reported on this call applies only as of today, December 6, 2023, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of a 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 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual future 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 or the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Brett Alan Cope: Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review POWL's fiscal 2023 fourth quarter and full year results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. We ended our fiscal year on a strong note as the POWL team delivered another great quarter to close out one of the best years in the company's history. The sharp recovery of our industrial end markets led to $1.4 billion of orders in fiscal 2024, by far the most we have ever recorded in a 12-month period, and twice that of the prior year. The demands that this sharp recovery has placed upon our team members continue to be significant. Inc. TREMENDOUS FRONT-END EFFORT FROM OUR SALES AND ESTIMATING PARTNERS, as well as our project leadership teams, as we ramp activity across all of our operating groups. I am incredibly proud of the entire POWL team performance.

Brett Alan Cope: It is in years like these of elevated project activity, delivering on time and on budget, that we earn and build on our reputation with our customers as a reliable, trusted partner, as we continue to differentiate ourselves from our competition. Revenue in the fourth quarter grew 28% to $209 million, while revenue for the full year grew 31% to $699 million. Strength across our core industrial end markets, particularly within LNG, as well as in our utility and commercial, and other industrial market sectors, drove the substantial growth compared to the prior year. Mike will provide additional detail on our revenue growth by market sector in a moment. We recorded $171 million of net new orders in the fourth quarter, which reflects our previously communicated expectation that order activity will remain healthy but return to a more normalized trend compared to previous quarters. We also delivered a gross margin of 24.9%, which is an increase of 430 basis points year over year.

Brett Alan Cope: While our margins have certainly benefited from these higher volumes, our productivity initiatives, as well as strong project execution and subsequent closeouts, are all helping to support significantly improved margins compared to recent years. We are confident that these measures, combined with our quality backlog, can support gross margins above our fiscal 2023 targets set in the high teens and deliver margins consistent with total fiscal 2023 levels in the low 20s for fiscal 2024. On the bottom line, we recorded earnings per diluted share of $2.17 in the fourth quarter, roughly three times higher than the prior year, and $4.50 per diluted share for the full year, which was roughly four times higher than fiscal 2022.

Brett Alan Cope: Our backlog remains incredibly strong at just under 1.3 billion dollars. It was roughly unchanged sequentially but is more than double the $592 million from one year ago. We continue to feel confident that our current backlog is comprised mainly of projects that speak to POWL's core competencies. Both the nature and scope of the project mix and our backlog are core to what we do best. And we are confident that we can deliver every dollar of our backlog on time and on budget.

Brett Alan Cope: We previously discussed some of the capital improvement projects that will facilitate both incremental capacity as well as improve production efficiency in several of our facilities. In the fiscal third quarter, we initiated an expansion of our Houston facility located along the Gulf Coast to support the rise of our backlog, while also helping us remain competitive on our schedules for future visits. Work on the expansion largely concluded in November, and we are now productively using the expanded capacity. As far as staffing levels are concerned, availability of quality labor, while always front of mind, is less of a headwind today than it was in recent quarters. This is in large part due to the hard work of our human resources team as they have developed creative personnel solutions and continue to ensure our manufacturing floors remain adequately staffed. However, the availability and cost of certain engineering components remain a challenge.

Brett Alan Cope: Overall, the inflationary environment and costs of most raw materials have certainly moderated. The challenges that came with the period of lower project activity immediately after the pandemic, followed by the inflationary environment, required that we prioritize execution and identify efficiencies across the organization. Today, we are enjoying the benefits of those efforts, while the largest markets we serve have enjoyed a strong recovery. Voting activity remains robust across most market sectors.

Brett Alan Cope: Expanding our market breadth has been a focus across the business, and our ability to leverage our products and expertise into a fast-growing market like data centers is a perfect example of these efforts. Critically, this is a market experiencing secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial market. Our near and median term priorities remain unchanged as we enter fiscal 2020.

Michael W. Metcalf: We've also taken successful steps to unlock operational efficiency, improve staffing levels, and optimize our procurement of raw materials, all of which have had a significant positive impact on our profitability. We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics, will support another successful year for POWL. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail. Thank you, Brett, and good morning, everyone.

Michael W. Metcalf: I will begin first with the fiscal fourth quarter business results and then move to the total year fiscal 2023 results. Revenues for the fourth fiscal quarter of 2023 increased by 28% to $209 million compared to the fiscal 2022 fourth quarter of $163 million, and improved sequentially by $16 million with strong growth across our core industrial oil and gas and petrochemical market sectors. Net orders for the fourth fiscal quarter were $171 million, $87 million lower than the same period one year ago on a challenging year-over-year comparison, as we secured a large LNG order in the fourth quarter of fiscal 2022. In general, the industrial end markets remain active, specifically within the LNG, gas-to-chemical, and hydrogen end markets. We also continue to see sustained commercial activity across our utility as well as in the commercial and other industrial market sectors.

Michael W. Metcalf: Overall, we're very pleased with the total year orders performance across the business and the resulting backlog position as we enter fiscal 2020. Compared to the fourth quarter of fiscal 2022, domestic revenues of $171 million increased by $38 million, or 28%, while international revenues also increased by 28% to $38 million on higher volume across all of our international locations. From a market sector perspective, revenues from our oil and gas and petrochemical sectors grew by 56 percent, largely driven by higher LNG and petrochemical revenues.

Michael W. Metcalf: In the fourth quarter of fiscal 2023, the utility sector was higher by 8%, while the commercial and other industrial sector was higher by 13% versus the prior year. This year-over-year growth was offset somewhat by the traction sector, which was lower by 52 percent, as we successfully completed a large municipal project in Canada in the first half of fiscal 2023, combined with softer commercial order activity in this sector throughout fiscal 2023. We reported $52 million of gross profit in the fiscal fourth quarter of 2023, which was higher by $19 million, or 55% versus the same period in the prior year. Gross profit as a percentage of revenues increased by 430 basis points to 24.9% of revenues in the fourth fiscal quarter compared to one year ago.

Michael W. Metcalf: The higher margin rate is, in large part, the result of favorable volume leverage and productivity initiatives, strong project execution, and subsequent closeouts, as well as the pricing actions that have been aimed at offsetting inflationary pressures as we continue to navigate through a challenging supply chain landscape. Albeit negligible, the margin rate also benefited from two order cancellations, which generated one million dollars of gross profit, or an incremental 35 basis points to the margin rate in the court. Selling, general, and administrative expenses decreased by $1 million, or 5%, in the quarter versus the prior year, attributable to lower fiscal fourth quarter variable performance-based compensation.

Michael W. Metcalf: SG&A expenses were $20 million in the fiscal fourth quarter, or 9.8% of revenue compared to 13.2% of revenues a year ago on both volume leverage and lower expenses in the fourth fiscal quarter of 2023. These results demonstrate our continued focus on cost management while also focusing on the critical resource requirements necessary to execute on the order plan. In the fourth quarter of fiscal 2023, we reported net income of $26.4 million, generating $2.17 per diluted share compared to net income of $8.7 million, or $0.73 per diluted share, in the fourth quarter of fiscal 2022. We generated $77 million of operating cash flow in the fiscal fourth quarter, driven by early cycle advance payments on the projects added to the order book over the past couple of quarters, in addition to generally strong working capital performance CAFX spending during the quarter was $3.8 million, with the capacity expansion at our offshore facility in Houston attributable to a large portion of the spending during the quarter.

Michael W. Metcalf: Now recapping our total year fiscal 2023, revenues of $699 million increased by $167 million, or 31% compared to fiscal 2022; orders were $1.4 billion, nearly double fiscal 2022 orders of $718 million, led by the strength in oil and gas and petrochemical end markets, coupled with the sustained market activity in the utility sector, as well as the incremental growth in all of the other end markets. Gross profit as a percent of revenues grew 510 basis points year-over-year to 21.1%, or $148 million, demonstrating continued success in offsetting inflationary headwinds and supply chain challenges while also leveraging higher volume and productivity initiatives throughout fiscal 2023. Considering these factors in addition to the quality of our backlog, we do anticipate that we can maintain this profitability level on a full year basis in fiscal 2024, notwithstanding the lower volume Selling general and administrative expenses were higher by $8 million compared to the prior year.

Michael W. Metcalf: Overall net SG&A expenses as a percentage of revenues were lower versus the prior year by 200 basis points, at 11.3% of revenues in fiscal 2023 versus 13.3% in the prior year. We reported net income of $54.5 million, or $4.50 per diluted share, compared to $13.7 million, or $1.15 per diluted share, in the prior year. During fiscal 2023, we recognized 38 cents per diluted share of gains from unusual items, which include order cancellations and a non-cash tax credit resulting from the reversal of a valuation allowance previously established in our United Kingdom ethics. Total year fiscal 2023 operating cash flow generated was $183 million versus a cash usage of $4 million in the prior year. At the end of fiscal 2023, we had cash in short-term investments of $279 million.

Michael W. Metcalf: $163 million higher than our fiscal 2022 year-end position, reflecting the growth in our backlog and the associated advance payments for large industrial projects, combined with strong working capital management. As we navigate through the coming fiscal year, we anticipate that our cash balance will continue to build as a result of the large projects and backlog before cash levels plateau and ultimately recede somewhat towards the middle or the back half of fiscal 2024 as a direct result of increasing working capital requirements in order to support project execution. The company holds zero long-term debt.

Michael W. Metcalf: Finally, in October 2023, we entered into a third amendment of our credit facility with Bank of America and included Texas Capital Bank as an additional lender under this agreement. Combined, this amendment increased our facility capacity to $150 million from the previous ceiling of $125 million. As we utilize this facility solely for commercial letters of credit, we felt that this was a prudent action in order to ensure our continued success across our NMARC.

Operator: Looking forward, we remain optimistic that the commercial momentum across our core and markets will remain robust throughout fiscal 2024. We are also encouraged by the profitability resulting from operating leverage, as well as the commercial levers implemented over the past several quarters, and we will remain acutely focused on executing our growing backlog as we navigate through fiscal 2024. As we continue to assess the impact of these levers and the associated quality of our backlog, notwithstanding the typical project challenges of timing and mix, we anticipate our total year margins for fiscal 2024 to be similar to what we experienced in fiscal 2023. Considering these variables, in addition to the strong commercial outlook across most of our end markets, as well as our liquidity position and the strength of our balance sheet, we are confident that we can sustain the solid results that we At this point, we'll be happy to answer your questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone.

Operator: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then 2. Our first question comes from John Franzreb with Sidoti and Company. Please go ahead. Good morning, guys, and thanks for taking the questions and congratulations on a great quarter. I'd like to start with the booking profile, the incoming order book of $171 million. If I compare it to the 10 years prior to fiscal 2023, you're roughly doing about $150 million of incoming order book, but we just came off two consecutive quarters of over $500 million of bookings. Can you kind of put into context what the opportunity profile looks like, and what you would expect the booking profile to look like in the coming year? Well, good morning, John, and thanks for the comments and the questions. Yeah, I appreciate the lead in on the question of the two previous quarters. A little bit of timing, of course, in that Q3. What was I going to book? And as we went into Q4, we were very pleased with the 171 net.

Brett Alan Cope: When I look at what made up in the sectors of the quarter, it was... Kind of on average with the core oil and gas, good strong utility content in the fourth quarter along with good contribution to the new sector that we're reporting out, and Commercial Light Industrial. As I look forward, I think that the cadence, Industries Inc., POWL, John Deysher, Peter Lukas, John Tanwanteng, Zach Vaughan, Brett Cope, Michael Metcalf, Powell Industries Inc., POWL, John Deysher, Peter Lukas, Jon Tanwanteng, Activity is still robust. In fact, you asked a question which I was thinking about as we were... Productions, Powell Industries, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL, POWL There's still a lot out there, We're very engaged.

Michael W. Metcalf: Timing is a little bit more uncertain, given the run we just went through over the last 12 to 18 months, but there's still a lot in front of us. Okay, and just to narrow it down, you mentioned also in the press release and in your prepared comments that we should be cognizant about the seasonality of Q1 versus Q4. And looking back again, pre-COVID, normal seasonal revenue declines, I eyeballed it to be around 15% or so in Q1 versus Q4, but we've had some really strong bookings. How should we think about seasonality on a sequential basis this year versus historical norms? Good morning, John. This is This is Mike.

Brett Alan Cope: I'll take that one. Given where we are with our backlog, a very healthy, healthy backlog, as we talked about in the prepared comments, I would, I kind of calibrate that a little more aggressive than the typical 15% that we've seen historically, probably somewhere in the 10, 10% range. Got it, got it. You know what? I'll just ask one more question and then go back into queue. You know, the gross margin profile has been outstanding in the last couple quarters, but you've kind of indicated that fiscal 24 should be more like the full-year tally versus a full-year tally. What's the primary counterweight that makes it tougher to hold the second half 23 gross margins on a go-forward basis? The big one is just timing quarter to quarter, so, you know, as we framed up the prepared comments that Mike shared in his remarks. You know, in the project business, it's always timing.

Brett Alan Cope: So even with the backlog that we have, there's still challenges quarter to quarter on timing, holds on projects, changes, where can we pull things in and move slots? That fundamental part of our model never changes, even with the rise in the backlog. With Q4, looking back over the number of years that you profiled this morning, we do well given the timing of when our fiscal year is against the end of the calendar year, construction schedules, and people getting things done in closeout. www.powellindustriesinc.com. What's the challenge from the November end-of-the-year run? And if I could add, Jon, if we calibrate on our trailing 12 month rate of gross profit to 21.1%, x unusual, 20.8%, that's kind of the range that we're looking at going into 2024, the low 20s. That's what we're targeting. Okay, thanks guys. I'm going to get back into it. Again, if you have a question, please press star then 1. Our next question comes from John Bratz with the Kansas City Capitol. Please go ahead. Good morning, Brett. Good morning, Mike.

John Franzreb: Brett, can you talk a little bit about the LNG landscape going forward? You know, are there still big projects being planned, and maybe, additional capacity being added at current, existing facilities? You know, I read a lot about new LNG facilities, but I guess sometimes I get a little confused about what's possible and what's not.

Brett Alan Cope: Can you discuss a little bit about what the LNG opportunities remain? Yeah, thanks, John. Good morning.

Brett Alan Cope: So, as I mentioned a couple of times throughout the last couple of calls, I'm really, really pleased with POWL's position and where we stand in the market on the domestic LNG landscape. I don't think there was a project last year that happened that we weren't involved with in some capacity, including the ones that we brought home. As I look out, there are a number of LNG expansions and some greenfields that are still sitting out there. You know, a comment earlier there from Mr. Franzreb, that there's still some uncertain time in an FID circumstance around it, but if I go back two years prior to the wave that we started a year ago last summer, you know, the cost outs, the estimating, the working with the engineering firms, very, very active on a lot of these to... www.powellindustriesinc.com business around hydrogen, we How those are going to get applied from the utility scale all the way down to the EV drive and the IRA money.

Brett Alan Cope: We're seeing a number of process plans as well for the future. Again, kind of the same sort of comment around timing, scope, what's right for POWL, but again, the activity is very broad, much wider than it was just LNG two years ago, but we feel pretty good about all three systems. Brett, in your conversations with your clients, 2024 is going to be an election year. And, you know, I don't know who's going to win, who's going to lose.

Brett Alan Cope: But, you know, if we had an executive branch that's a little bit more friendly towards oil and gas, would you see any significant change in the capital spending programs of your oil and gas clients under a new regime? I think, Jon, it certainly could have an impact. It happens with every administration, but there's always a time phasing to it. If I go back to the administration change that happened in the last election, you know, there was more regulation put in place. I mean, there just simply was.

Brett Alan Cope: We saw projects go on hold, there were new environmental studies and re-dos on the engineering side. We could see it all the way down to the design and how they were going to power the facilities, from having on-site turbines to putting all electric designs. So a lot of impact studies were done. It reworked some projects.

Brett Alan Cope: You know, we are starting to see, again, not whether you believe it's good or not, we are starting to see some projects with more IRA credits leaking into some of the projects right now. So yeah, I think clearly if we have an administration change, it will have an effect. It will turn parties away from the current regime.

Brett Alan Cope: I think it would have an impact on coral oil and gas stuff in the longer term. Okay, thank you. Mike, you talked a little bit about your cash flow and cash balances being at $279 million, and you expect them to build a little bit here before fading in the second half, but... You know, when you look at the $279 million, how much of it, if I could say, is yours as opposed to cash advances? Hey John, real quick. It's Brett.

Brett Alan Cope: Let me explain. I just realized I missed the back part of your question. We are looking at an additional expansion. So we did the one in 23, and we're looking at production capacity at one of our facilities in 24. And we'll report on that. And Jon, to address your question, this is kind of the rule of thumb for us. We typically earmark about 15 or so percent of revenues for working capital. This new facility that we just entered into, which I spoke about in the prepared comments, requires us to hold $60 million of liquidity at any point in time. So you kind of do the math. You get a number in the...

Michael W. Metcalf: Okay. All right. Thank you very much. The next question comes from John Franzreb with Sidoti and Company. Please go ahead.

John Franzreb: Yeah, I guess. I guess just a little bit about the tax rate on a go-forward basis, what kind of tax rates we should be building into our models for fiscal 2024? Yeah, we're building in an ETR of 24% on a global basis. OK. And what is the CAPEX budget? What was the final CAPEX budget for 2023 and the expected one in 2024? We spent $7.8 million in 2023.

Michael W. Metcalf: A large portion of that, as I mentioned, was the offshore capacity expansion. In 2024, as Brett mentioned, we are considering some other capacity initiatives that could move the number as we navigate through the early part. What should be the baseline number then, excluding the expansion maybe? Typically, I would say probably four to $5 million would be your typical spend per annum. But then you have some of these, you know, some of these other anomalies.

Michael W. Metcalf: Okay. And I guess maybe just one more question about the cadence of revenue recognition in 2024. You know, you typically have a fair amount of book business flow through, but, you know, we talked about the seasonality of the first quarter and the seasonality of the fourth quarter. Do Q2 and Q3 look similar, or is there an improving profile as the year progresses? Yeah, I think if you looked at the kind of trajectory of past fiscal years, I don't think we would see a different trajectory. First quarter will be softer than the other three, and then it'll ramp up 2Q, 3Q, and then 4Q is typically the strongest quarter of the year. I think we talked about that when you asked the question about spikes, Jon, www.powellindustries.com, Pretty.

Michael W. Metcalf: Pretty steady as it goes. Inc. I guess one last question, if I may. Are you still seeing a fair amount of smaller, you know, book-in-turn jobs, folks with the P&L, or is this all project-based work, you know, and is that, in fact, a margin profile, one way or the other? We absolutely remind all of our operating units to take care of all our customers, those small jobs, whether they're service-led, quick turns because there was an event at a facility that needs quick attention on the service side or a gear-only job, one or two sessions. We don't lose sight of those at all, and we're constantly reminding everybody.

Brett Alan Cope: Industry. Okay, thank you. Thanks for taking my follow-up questions. This concludes our question and answer session. I would like to turn the conference over to Brett Cope for any closing remarks. Thank you, Dave. As you've heard from both Mike and me this morning, we are very pleased with our fiscal 2023 and the fantastic financial performance of the POWL team. I am extremely proud and appreciative of all of you for joining us today. Thank you. ... Based upon the markets that we serve, we continue to believe that fiscal 2024 will be another strong year for POWL. With that, thank you for your participation on today's call. We appreciate your continued interest in POWL and look forward to speaking to you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Welcome to the Powell Industries earnings conference call. At this time, all participants are in a listen only mode. Should you need assistance please signally conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone.

Operator: Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in a listen-only mode.

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, investor relations. Thank you. You may begin.

Thank you and good morning everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year 2023, fourth quarter and full year results. With me on the call are Brett Cope, Powell's Chairman and CEO , and Mike Metcalf, Powell's CFO .

Ryan Coleman: Thank you and good morning everyone. Thank you for joining us on the POWL Industries conference call today to review fiscal year 2023 fourth quarter and full year results. With me on the call are Brett Cope, POWL's Chairman and CEO, and Mike Metcalf, POWL's CFO. There will be a replay of today's call, and it will be available via webcast by going to the company's website, powellind.com; or a telephonic replay will be available until December 13th. 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, powelind.com, or a telephonic replay will be available until December 13th. The information on how to access the replay was provided in yesterday's earnings release.

Please note that the information reported on this call speaks only as of today, December 6, 2023. And therefore, you are advised that any time-sensitive information may no longer be accurate at the time of a 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 meeting of the Private Security's litigation before MAC of 1995. Investors are cautioned at such forward-looking statements involve risk and uncertainties and that actual future results may differ materially from those projected in these forward-looking states.

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.

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 Paul's fiscal 2023 fourth quarter and full year results.

I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions.

We ended our fiscal year on a strong note as the Paul team delivered another great quarter to close out one of the best years in the company's history.

The sharp recovery of our industrial end markets led to $1.4 billion of orders in fiscal 2024. By far the most we have ever recorded in a 12-month period and twice that of the prior year.

The demands that this sharp recovery have placed upon our team members continue to be significant, including tremendous front and effort from our sales and estimating.

Brett Alan Cope: TREMENDOUS FRONT-END EFFORT FROM OUR SALES AND ESTIMATING PARTNERS, as well as our project leadership teams as we ramp activity across all of our operating groups. I am incredibly proud of the entire POWL team performance. It is in years like these of elevated project activity, delivering on time and on budget, that we earn and build on our reputation with our customers as a reliable, trusted partner, as we continue to differentiate ourselves from our competition. Revenue in the fourth quarter grew 28% to $209 million, while revenue for the full year grew 31% to $699 million. Strength across our core industrial end markets, particularly within LNG, as well as in our utility, commercial, and other industrial market sectors, drove the substantial growth compared to the prior year.

as well as our project leadership teams as we ramp activity across all of our operating groups.

I am incredibly proud of the entire Paul team performance.

It is in years like these of elevated project activity, delivering on time and on budget that we earn and build on our reputation with our customers as a reliable trusted partner, as we continue to differentiate ourselves from our competition.

Revenue in the fourth quarter grew 28% to $209 million. While revenue for the full year grew 31% to $699 million.

Strength across our core industrial end markets, particularly within LNG, as well as in our utility and commercial and other industrial market sectors, drove the substantial growth compared to the prior year. Michael provided additional detail on our revenue growth by market sector in a moment.

Brett Alan Cope: Mike will provide additional detail on our revenue growth by market sector in a moment. We recorded $171 million of net new orders in the fourth quarter, which reflects our previously communicated expectation that order activity will remain healthy but return to a more normalized trend compared to previous quarters. We also delivered a gross margin in the fourth quarter of 24.9%, which is an increase of 430 basis points year over year.

We recorded $171 million of net new orders in the fourth quarter, which reflects our previously communicated expectation that order activity will remain healthy, but return to a more normalized trend compared to previous quarter.

We also delivered a gross margin in the fourth quarter of 24.9%, which is an increase of 430 basis points year over year.

While our margins have certainly benefited from this higher volumes, our productivity initiatives, as well as strong project execution and subsequent closeouts, are all helping to support significantly improved margins compared to recent years.

We are confident that these measures combined with our quality backlog can support gross margins above our fiscal 2023 targets set in the high teams and deliver margins consistent with total fiscal 2023 levels in the low 20s for fiscal 2024.

On the bottom line, we recorded earnings per deluded share of $2.17 in the fourth quarter, roughly three times higher than the prior year, and $4.50 per deluded share for the full year, which was roughly four times higher than fiscal 2022.

Our backlog remains incredibly strong. It's just under $1.3 billion.

It was roughly unchanged sequentially, but is more than double the $592 million from one year ago.

We continue to feel confident that our current backlog is comprised mainly of projects that speak to Paul's core confidence.

both the nature and scope of the project mix and our backlog are core to what we do best. And we are confident that we can deliver every dollar of our backlog on time and on budget.

We previously discussed some of the capital improvement projects that will facilitate both incremental capacity as well as improve production efficiency in several of our facilities.

In the fiscal third quarter, we initiated an expansion of our Houston facility, located along the Gulf Coast to support the rise of our backlog, while also helping us remain competitive on our schedules for future business.

Work on the expansion largely concluded in November , and we are now productively using the expanded capacity.

As far as staffing levels are concerned, availability of quality labor, while always front of mind, is less of a headwind today than it was in recent corners.

This is in large part due to the hard work of our human resources team, as they have developed creative personnel solutions and continued to ensure our manufacturing floors remain adequately staffed.

The availability and cost of certain engineer components remains a challenge.

though overall the inflationary environment and costs of most raw materials have certainly modern.

The challenges that came with the period of lower project activity immediately after the pandemic followed by the inflationary environment.

require that we prioritize execution and identify efficiencies across the organization.

Today, we are enjoying the benefits of those efforts, while the largest markets we serve have enjoyed a strong recovery.

Sporting at Cody remains robust across most market sectors.

We continue to see favorable opportunities with an LNG, gas pipeline, and the gas to chemical end-murts.

Brett Alan Cope: We continue to see favorable opportunities with an LNG, gas pipeline, and the gas-to-chemical end market. We've also been pleased with overall activity within the renewable markets of hydrogen, biodiesel, and related biofuels, such as sustainable aviation fuel, as well as carbon capture and sequestration. We anticipate these markets being larger contributors to our financial results going forward. Additionally, we continue to capitalize on opportunities within our commercial and other industrial sectors. Data centers have been and remain an active area of growth in this sector. Expanding our market breadth has been a focus across the business, and our ability to leverage our products and expertise into a fast-growing market like data centers is a perfect example of these efforts. Critically, this is a market experiencing secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial market. Our near and median term priorities remain unchanged as we enter fiscal 2020.

We've also been pleased with overall activity within the renewable markets of hydrogen, biodiesel, and related biofuels, such as sustainable aviation fuel, as well as carbon capture and sequestration.

We envision these markets being larger contributors to our financial results going forward.

Additionally, we continue to capitalize on opportunities within our commercial and other industrial sectors.

Data centers have been and remain an active area of growth in this section.

expanding our market breadth has many focus across the business and our ability to leverage our products and expertise into a fast growing market like data centers is a perfect example of these

Critically, this is a market in secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial market.

Our near-emidian term priorities remain unchanged as we enter fiscal 2024. We are focused on growing our electrical automation platform.

Brett Alan Cope: We are focused on growing our electrical automation platform, expanding our existing services franchise, and diversifying our product portfolio, either through tangential applications that complement our existing offerings, as well as expanding the scope of our product catalog into new electrical technologies. We expect our R&D spend to increase in 2024 as we work toward this end. In summary, we are entering fiscal 2024 with roughly $1.3 billion of backlog, which provides durable and predictable project schedules to build upon. We continue to see healthy levels of project activity across our end markets and believe that the fundamentals supporting our core industrial markets remain favorable and robust. We've also taken successful steps to unlock operational efficiency, improve staffing levels, and optimize our procurement of raw materials, all of which have had a significant positive impact on our profitability. We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics, will support another successful year for POWL. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail. Thank you, Brett, and good morning, everyone.

and diversifying our product portfolio. Either through tangential applications that complement our existing offerings, as well as expanding the scope of our product catalog into new electrical technology.

We expect our R&D spending increase in 2024 as we work toward this end.

In summary, we are entering fiscal 2024 with roughly $1.3 billion in a backlog, which provides durable and predictable project schedules to build up.

We continue to see healthy levels of project activity across our end markets and believe that the fundamentals supporting our core industrial markets remain favorable and robust.

We've also taken successful steps to unlock operational efficiency.

improve staffing levels and optimize our procurement of raw materials, all in which have had a significant positive impact on our profitability.

We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics, will support another successful year for policy.

If that, I'll turn the call over to Mike to walk us through our financial results in greater detail.

I'll begin first with the fiscal fourth quarter business results and then move to the total year fiscal 2023.

Revenues for the fourth fiscal quarter of 2023 increased by 28% to $209 million compared to the fiscal 2022 fourth quarter of 163 million.

and improves sequentially by $16 million with strong growth across our core industrial oil and gas and petrochemical market sector.

Net orders for the fourth fiscal quarter were $171 million. 87 million lower than the same period one year ago on a challenging year over year comparison. As we secured a large energy order in the fourth quarter of fiscal 2022.

In general, the industrial end markets remain active, specifically within the LNG gas, to chemical and hydrogen end markets.

We also continue to see sustained commercial activity across our utility, as well as the commercial and other industrial markets.

As a result of the strong revenue performance offset by healthy but moderate orders cadence, our book to bill ratio was 0.8 times in fiscal fourth.

Michael W. Metcalf: As a result of the strong revenue performance offset by a healthy but moderate orders cadence, our book-to-bill ratio was 0.8 times in fiscal fourth. Reported backlog at the end of our fiscal fourth quarter was $1.3 billion, $701 million higher versus the end of fiscal 2022. The substantial increase in the order book was across the majority of our market sectors, oil and gas, petrochemical, utility, as well as commercial and other industrial landmarks. Overall, we're very pleased with the total year orders performance across the business and the resulting backlog position as we enter fiscal 2020. Compared to the fourth quarter of fiscal 2022, domestic revenues of $171 million increased by $38 million, or 28%, while international revenues also increased by 28% to $38 million on higher volume across all of our international locations.

Reported a backlog at the end of our fiscal fourth quarter was $1.3 billion. 700 and 1 million higher versus the end of fiscal 2022.

The substantial increase in the order book was across the majority of our market sectors. Oil and gas, petrochemical utility, as well as the commercial and other industrial landmarks.

Overall, we're very pleased with the total year order's performance across the business and the resulting backlog position as we enter our fiscal 2020.

Compared to the fourth quarter of fiscal 2022, domestic revenues of $171 million increased by $38 million, or 28 percent, while international revenues also increased by 28 percent to $38 million on higher volume across all of our international locations.

From a market sector perspective, revenues from oil and gas and petrochemical sectors grew 56%. Largely driven by higher LNG and petrochemical revenues.

Michael W. Metcalf: From a market sector perspective, revenues from our oil and gas and petrochemical sectors grew 56 percent, largely driven by higher LNG and petrochemical revenues. In the fourth quarter of fiscal 2023, the utility sector was higher by 8%, while the commercial and other industrial sector was higher by 13% versus the prior year. This year-over-year growth was offset somewhat by the traction sector, which was lower by 52 percent as we successfully completed a large municipal project in Canada in the first half of fiscal 2023, combined with softer commercial order activity in this sector throughout fiscal 2020. We reported $52 million of gross profit in the fiscal fourth quarter of 2023, which was higher by $19 million, or 55% versus the same period in the prior year.

In the fourth quarter of fiscal 2023, the utility sector was higher by 8%, while the commercial and other industrial sector was higher by 13% versus prior year.

This year over year growth was offset somewhat by the traction sector, which was lower by 52% as we successfully completed a large municipal project in Canada in the first half of fiscal 2023 combined with softer commercial order activity in this sector throughout fiscal

We reported $52 million of gross profit in the fiscal fourth quarter of 2023, which was higher by $19 million or 55% versus the same period in the prior year.

Gross profit as a percentage of revenues increased by 430 basis points to 24.9% of revenues in the fourth fiscal quarter compared to one year ago.

Michael W. Metcalf: Gross profit as a percentage of revenues increased by 430 basis points to 24.9% of revenues in the fourth fiscal quarter compared to one year ago. The higher margin rate is, in large part, the result of favorable volume leverage and productivity initiatives, strong project execution, and subsequent closeouts, as well as the pricing actions that have been aimed at offsetting inflationary pressures as we continue to navigate through a challenging supply chain landscape. Albeit negligible, the margin rate also benefited from two order cancellations, which generated one million dollars of gross profit, or an incremental 35 basis points to the margin rate in the court. Selling, general, and administrative expenses decreased by $1 million, or 5%, in the quarter versus the prior year, attributable to lower fiscal fourth quarter variable performance-based compensation.

The higher margin rate is in large part the result of favorable volume leverage and productivity initiatives, strong project execution and subsequent close-up.

as well as the pricing actions that have been aimed at offsetting inflationary pressures as we continue to navigate through a challenging supply chain link.

albeit negligible, the margin rate also benefited from two order cancellations which generated $1 million of gross profit or an incremental 35 basis points to the margin rate in the court.

Selling, general, and administrative expenses decreased by $1 million or 5% in the quarter versus the prior year, attributable to the lower fiscal fourth quarter variable performance base

SGNA expenses were $20 million in the fiscal fourth quarter or 9.8% of revenue compared to 13.2% of revenues a year ago on both volume leverage and lower expenses in the fourth fiscal quarter of 2022.

These results demonstrate our continued focus on cost management, while also focusing on the critical resource requirements necessary to execute on the order.

In the fourth quarter of fiscal 2023, we reported net income of $26.4 million, generating $2.17 per diluted share compared to net income of $8.7 million or $73 per diluted share in the fourth quarter of fiscal 2020.

Capac spending during the quarter was $3.8 million with the capacity expansion at our offshore facility in Houston attributable to a large portion of the spending during the

Now recapping our total year fiscal 2023.

Michael Metcalf: As we continue to assess the impact of these levers and associated quality of our backlog, notwithstanding the typical project challenges of timing and mix, we anticipate our total year margins for fiscal 2024 to be similar to what we experienced in fiscal 2023. Considering these variables in addition to the strong commercial outlook across most of our end markets, as well as our liquidity position and the strength of our balance sheet, we are confident that we can sustain the solid result that we've delivered in fiscal 2023 and continue this into fiscal 2024.

Operator: At this point, we'll be happy to answer your questions. We will now begin the question and answer session to ask a question.

Operator: You may press star then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

John Franzreb: Our first question comes from John Franzreb with Fidelity and Company. Please go ahead.

Brett Cope: Good morning guys and thanks for taking the questions and congratulations on a great quarter. I'd like to start with the booking profile of the incoming order book of $171 million. If I compare it to the 10 years prior to fiscal 2023, you're roughly doing about $150 million of incoming order book. But we just came off two consecutive quarters of over $500 million of bookings. Can you kind of put into context what the opportunity profile looks like, what you would expect the booking profile look like in the coming year? Good morning, Jonathan.

Brett Cope: Thanks for the comments and the questions, Brett. Yeah, I appreciate the lead in on the question of the two previous quarters. A little bit of timing, of course, in that Q3, what was going to book and has went into Q4. We were very pleased with the $171 net for the quarter.

Brett Cope: When I look at what made up in the sectors of the quarter, it was kind of on average with the core oil and gas, good strong utility. Content in the fourth quarter, along with the good contribution to the new sector that we're reporting out in the commercial line industrial market. As I look forward, I think that the cadence continues. There weren't any mega projects in the Q4 given the run we had in the previous three quarters to Q4.

Brett Cope: But that said, in my prepared comments, activities still robust. There's, in fact, you asked a question, which I was thinking about as we prepared for today. You know, you asked me a question a caller to about, you know, are we at halftime or where are we at relative to that? You know, I'm going to hold my answer in that last call. There's still a lot out there. We're very engaged.

Brett Cope: Timing is a little bit more uncertain. You know, given the run we just went through for the last 12 to 18 months. But there's still a lot in front of us. Okay.

Michael Metcalf: And just to narrow it down, you mentioned also in the press release and in your prepared comments that we should be cognizant about the seasonality of Q1 versus Q4. And looking back, again, pre-COVID, you know, normal seasonal revenue declines. I eyeballed it to be around 15% or so in Q1 versus Q4, but we've had some real strong bookings. You know, how should we think about the seasonality and the sequential basis this year versus historical norms?

Michael Metcalf: Good morning, John. This is Mike.

Michael Metcalf: I'll take that one. Given where we are with our backlog, very healthy backlog as we talked about in the prepared comments. I would kind of calibrate that a little more aggressive than the typical 15% that we've seen historically, probably somewhere in the 10% range. This coming year. Got it, got it.

Brett Cope: You know, I just have one more question that I'm back into Q. You know, the close margin profile has been outstanding in the last couple quarters. But you've kind of indicated that fiscal 24 should be more like the four-year tally versus the four-year tally. What's the primary counterweight that makes it tougher to hold the second half, 23 growth margins on a gold-fold basis?

Brett Cope: The big one is just timing quarter to quarter. So, you know, as we framed up the prepared comments that Mike shared his remarks, you know, the project business is always timing. So even with the backlog that we have, there's still challenges quarter to quarter on timing, holds on projects changes, where can we pull things in and move slots that fundamental part of our model never changes, even with the rise in the backlog.

Brett Cope: So Q4, you're looking back over the number of years that you profile this morning, you know, we do well given the timing. We're seeing when our fiscal lays against the end of the calendar year, the structure schedules and people getting things done and close out. But Q1 definitely both on the factory side of productivity and some ramp downs and ramp ups, and then just timing of people in the office, getting things done signed in the house as always, always a challenge from the November and the year run.

Brett Cope: And if I could add, John, if we calibrate on our trailing 12 month rate of gross profit to 21.1% X unusual 20.8%. That's kind of the range that we're looking at going into 2024, the low 20s. That's what we're targeting the business at. Okay, thanks guys, I'm going to get back into queue. Again, if you have a question, please press star then one.

John Bratz: Our next question comes from John Bratz with Kansas City Capitol. Please go ahead.

Brett Cope: Morning, Brett. Morning, Mike. Brett, could you talk a little bit about the LNG landscape going forward? Are there still big projects being planned and maybe what about additional capacity being added at current at existing facilities? I read a lot about the new LNG facilities, but I guess sometimes I get a little confused what's possible and what's not. Can you discuss a little bit about what the LNG opportunities remain? Yep, thanks, John. Good morning.

Brett Cope: So as I mentioned a couple of times last, throughout the last couple of calls, really, really pleased with Paul's position and where we're standing in the market on the domestic LNG landscape. I don't think there was a project last year that happened that we weren't involved with in some some capacity, including the ones of certainly that we brought brought home in book. As I look out, there are a number of LNG expansions and some greenfield that are still sitting out there.

Brett Cope: You know, comment earlier there to Mr. Fransrub that there's still some uncertain time in an FID circumstance around it. But if I go back two years prior to the wave that we started a year ago last summer, you know, the cost house, the estimating, the working with the engineering firms, very, very active on a lot of these to size them up with the engineering partners and the end clients. And then you add into that the growing business around hydrogen, we're seeing a number of those opportunities that they're sizable.

Brett Cope: And then there's there's a, you know, on the renewable side around batteries and how those are going to get applied to a very from utility scale all the way down to the V drive and the IRA money. We're seeing a number of process plans as well in the future. So again, some some kind of the same sort of comment around timing scope, what's right for Paul.

Brett Cope: But again, the activity is very broad much more broad than it was just LNG two years ago, but we feel pretty good about all three, is looking forward. Brett, in your conversations with your clients in 2024 is going to be an election year, and I don't know who's going to win, who's going to lose. But if we have a executive branch that's a little bit more friendly towards oil and gas, would you see any significant change in the capital spending programs of your oil and gas clients?

Brett Cope: You know, under a new regime? You know, I think long term, John, it certainly could have an impact. It does every administration, but there's always a time phasing to it. If I go back to the administration change that happened in the last election, there was more regulation put in place. I mean, there just simply was.

Brett Cope: We saw projects go on hold. There were new environmental studies and reviews on the engineering side. We could see it all the way down to the design and how they're going to power the facilities from having onsite turbines to putting all electric designs. So a lot of impact studies were done and it reworked some projects. You know, we are starting to see, again, not to whether you believe it's good or not, we are starting to see some projects with more of the IRA credits leaking into some of the projects right now.

Brett Cope: So yeah, I think clearly if we have an administration change, it will have an effect. If it turns parties from the current regime, I think it would have an impact on the core oil and gas stuff longer term for sure. Okay, thank you.

John Bratz: Mike, you talked a little bit about your cash low and cash balances are at 279 million and you expect them to build a little bit here before fading in the second half. But, you know, when you look at the 279 million, how much of it, if I could say, is yours as opposed to cash advances? Hey, John, real quick, spread.

Michael Metcalf: I just realized I missed the back part of your question, capacity. We are looking at an additional expansion in 24. So we did the one in 23, we're looking at a production capacity, one of our facilities in 24. We'll report on that in Q2. Okay. And, John, to address your question, you know, this is kind of the rule of thumb for us. We typically earmark about 15 or so percent of revenues to work in capital.

Michael Metcalf: This new facility that we just entered into that I spoke about in the prepared comments required the old $60 million of liquidity at any point in time. So you kind of do that math and you get a number in the range of 200 million.

John Bratz: Okay. All right. Thank you very much. Yeah.

John Franzreb: The next question comes from John Friensreb with Fedodi and company. Please go ahead.

Michael Metcalf: Yeah, I guess, I guess just a little bit about the tax rate on a go forward basis. What kind of tax rates we've been building into our models for fiscal 2024? Yeah, we're building an ETR 24% on a global basis, John. Okay.

Michael Metcalf: And what's the capex budget? What was the final capex budget for 2023 and expected one in 2024? We spent $7.8 million in 2023.

Michael Metcalf: A large portion of that, as I mentioned, was the offshore capacity expansion. In 2024, as Brett mentioned, we are considering some other capacity initiatives that could move the number as we navigate through the early part of 24. What should be the baseline number then? Excluding the expansion, maybe. Typically, I would say probably $4 to $5 million would be your typical spend for random.

Michael Metcalf: But then you have some of these, you know, some of these other anomalies that you have to put on top of that. Okay, and I guess maybe just one more question about the cadence of revenue recognition in 2024. You typically have a fair amount of the book business flow through, but you know, we talked about the seasonality of the first quarter and the seasonality of the fourth quarter. The Q2 and Q3 look similar or is there a improving profile of the year progresses?

Michael Metcalf: Yeah, I think if you looked at the kind of trajectory of past fiscal years, I don't think we would see a different trajectory. First quarter will be softer than the other three and then it will ramp up to Q3Q and then 4Q is typically the strongest quarter of the year.

Brett Cope: I think we talked about that when I want to call to you asked a question about spikes John. I don't think it's pretty level level laid out the way we kind of entered kind of finish up 23 and kind of did the planning pretty pretty steady as it goes. Just following the trends. I guess one less question if I may. Are you still seeing a fair amount of smaller, you know, book and turn jobs, focus of the B&L or this project base work, you know, and is that effective margin profile the one with the other?

Brett Cope: We absolutely remind all of our operating units to take care of all our customers. We have those small jobs and whether they are service led, you know, quick turns because there was an event at a facility that needs quick attention on the service side or gear only job. One or two sections. Absolutely. We don't lose sight of those at all and we're constantly reminding everybody to not just chase the big ones. Okay, thank you. Thanks for taking my follows. Thanks, John.

Operator: This concludes our question and answer session.

Brett Cope: I would like to pin the conference over to Brett Cope for any closing remarks. Thank you, Dave. As you heard from both Mike and me this morning, we are very pleased with our fiscal 2023 and the fantastic financial performance that the policy delivered. I am extremely proud and appreciative of every one of our employees and how they are meeting the challenge the market has presented to our company. Based upon the markets that we serve, we continue to believe that fiscal 2024 will be another strong year for Paul.

Brett Cope: With that, thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking to you with your next report. The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

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I'd now like to turn the conference over to Ryan Coleman Investor Relations. Thank you you may begin.

Thank you and good morning, everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year 2023 fourth quarter and full year results with me on the call are Brett Cope Powell's, chairman and CEO and Mike Metcalf Powell's CFO.

Welcome to the Powell Industries earnings Conference call. At this time, all participants are in a 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.

There will be a replay of today's call and it will be available via webcast by going to the company's website <unk> dot com or a telephonic replay will be available until December 13th the information on how to access. The replay was provided in yesterday's earnings release.

Questions to ask a question you May press Star then one on a touchtone phone.

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Please note that the information reported on this call speaks only as of today December six 2023, and therefore, you're advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.

I'd now like to turn the conference over to Ryan Coleman Investor Relations. Thank you you may begin.

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 1995.

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 N. The dot com or a telephonic replay will be available until December 13th the information on how to access. The replay was provided in yesterday's earnings release.

Investors are cautioned that such forward looking statements involve risks and uncertainties and that actual future 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.

<unk> 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.

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.

Thank you Ryan and good morning, everyone.

For joining us today to review <unk> fiscal 2023 fourth quarter and full year results I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions.

We ended our fiscal year on a strong note as the Pall team delivered another great quarter to close out one of the best years in the company's history.

These risks and uncertainties include but are not limited to competition and competitive pressures.

The sharp recovery of our industrial end markets led to one $4 billion of orders in fiscal 2024 by far the most we have ever recorded in a 12 month period and twice that of the prior year.

The demands that the sharp recovery in placed upon our team members continue to be significant <unk>.

Thank you, Brian and good morning, everyone.

Including tremendous front and effort from our sales and estimating teams as well as our project leadership teams as we ramp activity across all of our operating groups I am incredibly proud of the entire Pall team performance.

Thank you for joining us today to review policy fiscal 2023 fourth quarter and full year results 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 in years like these have elevated project activity delivering on time and on budget that we earn and build on our reputation with our customers as a reliable trusted partner.

We ended our fiscal year on a strong note as the Pall team delivered another great quarter to close out one of the best years in the company's history.

The sharp recovery of our industrial end markets led to $1 $4 billion of orders in fiscal 2024 by far the most we have ever recorded in a 12 month period and twice that of the prior year.

As we continue to differentiate ourselves from our competition.

Revenue in the fourth quarter grew 28% to $209 million, while revenue for the full year grew 31% to $699 million.

The demands that the sharp recovery in placed upon our team members continue to be significant.

Strength across our core industrial end markets, particularly within LNG as well as in our utility and commercial and other industrial market sectors drove the substantial growth compared to the prior year, Mike will provide additional detail on our revenue growth by market sector in a moment.

Including tremendous front end effort from our sales and estimating teams as well as our project leadership teams as we ramp activity across all of our operating groups I am incredibly proud of the entire power team performance.

It has in years like these are elevated project activity delivering on time and on budget that we earn and build on our reputation with our customers as a reliable trusted partner.

We recorded $171 million of net new orders in the fourth quarter.

Which reflects our previously communicated expectation that order activity will remain healthy, but returned to a more normalized trend compared to previous quarters.

As we continue to differentiate ourselves from our competition.

Revenue in the fourth quarter grew 28% to $209 million, while revenue for the full year grew 31% to $699 million.

We also delivered a gross margin in the fourth quarter of 24, 9%, which is an increase of 430 basis points year over year.

While our margins have certainly benefited from this higher volumes, our productivity initiatives as well as strong project execution and subsequent closeouts are all helping to support significantly improved margins compared to recent years.

Mike will provide additional detail on our revenue growth by market sector in a moment.

We are confident that these measures combined with our quality backlog can support gross margins above our fiscal 2023 targets set in the high teens and deliver margins consistent with total fiscal 2023 levels.

We recorded $171 million of net new orders in the fourth quarter, which reflects our previously communicated expectation that order activity will remain healthy, but returned to a more normalized trend compared to previous quarters.

In the low twenties for fiscal 2024.

On the bottom line, we recorded earnings per diluted share of $2 17 in the fourth quarter.

We also delivered a gross margin in the fourth quarter of 24, 9%, which is an increase of 430 basis points year over year.

Three times higher than the prior year and $4 50 per diluted share for the full year, which was roughly four times higher than fiscal 2022.

Our backlog remains incredibly strong at just under $1 3 billion.

It was roughly unchanged sequentially, but is more than double the $592 million from one year ago.

We continue to feel confident that our current backlog is comprised mainly of projects that speak to <unk> core competencies, both the nature and scope of the project mix in our backlog are core to what we do best and we are confident that we can deliver every dollar of our backlog on time and on budget.

In the low twenties for fiscal 2024.

On the bottom line, we recorded earnings per diluted share of $2 17 in the fourth quarter, roughly three times higher than the prior year and $4 50 per diluted share for the full year, which was roughly four times higher than fiscal 2022.

We previously discussed some of the capital improvement projects that will facilitate both incremental capacity as well as improved production efficiency and several of our facilities.

In the fiscal third quarter, we initiated an expansion of our Houston facility located along the Gulf coast to support the rise of our backlog, while also helping us remain competitive on our schedules for future business.

Our backlog remains incredibly strong at just under $1 3 billion.

It was roughly unchanged sequentially, but is more than double the $592 million from one year ago.

Work on the expansion largely concluded in November and we are now productively using the expanded capacity.

We continue to feel confident that our current backlog is comprised mainly of projects that speak to pulse core competencies.

As far as staffing levels are concerned availability of quality labor, while always front of mind is less of a headwind today than it was in recent quarters.

The nature and scope of the project mix in our backlog are core to what we do best and we are confident that we can deliver every dollar of our backlog on time and on budget.

This is in large part due to the hard work of our human resources team as they have developed creative personnel solutions and continue to ensure our manufacturing floors remain adequately staffed.

We previously discussed some of the capital improvement projects that will facilitate both incremental capacity as well as improved production efficiency and several of our facilities.

The availability and cost of certain engineered components remains a challenge.

So overall, the inflationary environment and cost of most raw materials have certainly moderated.

The challenges that came with a period of lower project activity immediately after the pandemic followed by the inflationary environment.

Work on the expansion largely concluded in November and we are now productively using the expanded capacity.

Required that we prioritize execution and identify efficiencies across the organization.

As far as staffing levels are concerned availability of quality labor, while always front of mind is less of a headwind today than it was in recent quarters.

Today, we are enjoying the benefits of those efforts while the largest markets. We serve have enjoyed a strong recovery.

Quoting activity remains robust across most market sectors.

This is in large part due to the hard work of our human resources team as they have developed creative personnel solutions and continue to ensure our manufacturing floors remain adequately staffed.

We continue to see favorable opportunities within LNG gas pipeline and the gas to chemical end markets. We've also been pleased with overall activity within the renewable markets of hydrogen.

The availability and cost of certain engineered components remains a challenge.

So overall, the inflationary environment and cost most raw materials have certainly moderated.

Diesel and related Biofuels, such as sustainable aviation fuel as well as carbon capture and sequestration we.

The challenges that came with a period of lower project activity immediately after the pandemic followed by the inflationary environment.

We envision these markets being larger contributors to our financial results going forward.

Additionally, we continued to capitalize on opportunities within our commercial and other industrial sector.

Acquired that we prioritize execution and identify efficiencies across the organization.

Data centers have been and remain an active area of growth in this sector.

Today, we are enjoying the benefits of those efforts while the largest markets. We serve have enjoyed a strong recovery.

Quoting activity remains robust across most market sectors.

We continue to see favorable opportunities within LNG gas pipeline and the gas to chemical end markets. We've also been pleased with overall activity within the renewable markets of hydrogen biodiesel and related biofuels, such as sustainable aviation fuel as well as carbon capture and sequestration we.

Critically this is a market in the secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial markets.

Our near and medium term priorities remain unchanged as we enter fiscal 2024.

We are focused on growing our electrical automation platform.

We envision these markets being larger contributors to our financial results going forward.

Expanding our existing services franchise.

Additionally, we continued to capitalize on opportunities within our commercial and other industrial sector.

And diversifying our product portfolio, either through tangential applications that complement our existing offerings as well as expanding the scope of our product catalog into new electrical technologies.

Data centers have been and remain an active area of growth in this sector.

Expanding our market breadth has been a focus across the business and our ability to leverage our products and expertise into a fast growing market like data centers is a perfect example of these efforts critically this is a market in the secular growth that reduces the cyclicality of our order book and is a perfect complement to our core industrial markets.

We expect our R&D spend to increase in 2024 as we work toward this end.

In summary, we are entering fiscal 2024 with roughly $1 3 billion of.

Backlog, which provides durable and predictable project schedules to build upon and we.

Yeah.

Our near and medium term priorities remain unchanged as we enter fiscal 2024.

We continue to see healthy levels of project activity across our end markets and believe that the fundamentals supporting our core industrial markets remain favorable and robust.

We are focused on growing our electrical automation platform.

Expanding our existing services franchise.

We've also taken successful steps to unlock operational efficiencies improved staffing levels and optimize our procurement of raw materials, all of which have had a significant positive impact on our profitability.

We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics will support another successful year for Paul.

We expect our R&D spend to increase in 2024 as we work toward this end.

In summary, we are entering fiscal 2024 with roughly $1 3 billion of backlog, which provides durable and predictable project schedules to build upon.

With that I'll turn the call over to Mike to walk us through our financial results in greater detail.

Thank you Brett and good morning, everyone.

I will begin first with the fiscal fourth quarter business results and then move to the total year fiscal 2023 results.

We continue to see healthy levels of project activity across our end markets and believe that the fundamentals supporting our core industrial markets remained favorable and robust.

Revenues for the fourth fiscal quarter of 2023 increased by 28% to $209 million compared to the fiscal 2020 to fourth quarter of $163 million in.

We've also taken successful steps to unlock operational efficiencies improve staffing levels and optimize our procurement of raw materials, all of which have had a significant positive impact on our profitability.

An improved sequentially by $16 million with strong growth across our core industrial oil and gas and petrochemical market sectors.

We are confident that our execution and our strategic initiatives, coupled with favorable industry dynamics will support another successful year for Paul.

Net orders for the fourth fiscal quarter were $171 million $87 million lower than the same period, one year ago on a challenging year over year comparison, as we secured a large LNG order in the fourth quarter of fiscal 2022.

With that I'll turn the call over to Mike to walk us through our financial results in greater detail.

Yeah.

Thank you Brett and good morning, everyone.

I will begin first with the fiscal fourth quarter business results and then move to the total year fiscal 2023 results.

In general the industrial end markets remain active specifically within the LNG get to chemical and hydrogen and markets.

Revenues for the fourth fiscal quarter of 2023 increased by 28% to $209 million compared to the fiscal 2020 to fourth quarter of $163 million.

We also continue to see sustained commercial activity across our utility as well as the commercial and other industrial market sectors.

As a result of the strong revenue performance offset by a healthy but moderate orders cadence our book to Bill ratio was 0.8 times in fiscal fourth quarter.

And improved sequentially by $16 million with strong growth across our core industrial oil and gas and petrochemical market sectors.

Yeah.

Reported backlog at the end of our fiscal fourth quarter was $1 $3.701 billion higher versus the end of fiscal 2022.

The substantial increase in the order book was across the majority of our market sectors oil and gas petrochemical utility as well as the commercial and other industrial end markets.

In general the industrial end markets remain active specifically within the LNG gas to chemical and hydrogen and markets.

Overall, we're very pleased with the total year orders performance across the business and the resulting backlog position as we enter our fiscal 2024.

We also continue to see sustained commercial activity across our utility as well as the commercial and other industrial market sectors.

Compared to the fourth quarter of fiscal 2022 domestic revenues of $171 million increased by $38 million or 28%. While international revenues also increased by 28% to $38 million on higher volume across all of our international.

As a result of the strong revenue performance offset by healthy, but moderate orders cadence our book to Bill ratio was 0.8 times in fiscal fourth quarter.

Reported backlog at the end of our fiscal fourth quarter was $1 $3.701 billion higher versus the end of fiscal 2022.

Locations.

From a market sector perspective revenues from our oil and gas and petrochemical sectors grew 56% largely driven by higher LNG and petrochemical revenues.

The substantial increase in the order book was across the majority of our market sectors oil and gas petrochemical utility as well as the commercial and other industrial end markets.

In the fourth quarter of fiscal 2023 of the utility sector was higher by 8%, while the commercial and other industrial sector was higher by 13% versus the prior year.

Overall, we're very pleased with the total year orders performance across the business and the resulting backlog position as we enter our fiscal 2024.

This year over year growth was offset somewhat by the traction sector, which was lower by 52% as we successfully completed a large municipal project in Canada in the first half of fiscal 2023, combined with softer commercial order activity in this sector throughout fiscal 2023.

Locations.

We reported $52 million of gross profit in the fiscal fourth quarter of 2023, which was higher by $19 million or 55% versus the same period in the prior year.

From a market sector perspective revenues from our oil and gas and petrochemical sectors grew 56% largely driven by higher LNG and petrochemical revenues.

In the fourth quarter of fiscal 2023 of the utility sector was higher by 8%, while the commercial and other industrial sector was higher by 13% versus the prior year.

Gross profit as a percentage of revenues increased by 430 basis points to 24, 9% of revenues in the fourth fiscal quarter compared to one year ago. The.

This year over year growth was offset somewhat by the traction sector, which was lower by 52% as we successfully completed a large municipal project in Canada in the first half of fiscal 2023, combined with softer commercial order activity in this sector throughout fiscal 2023.

The higher margin rate is in large part the result of favorable volume leverage and productivity initiatives strong project execution and subsequently closeouts as well as the pricing actions that have been aimed at offsetting inflationary pressures as we continue to navigate through a challenging supply chain landscape.

We reported $52 million of gross profit in the fiscal fourth quarter of 2023, which was higher by $19 million or 55% versus the same period in the prior year.

Albeit negligible the margin rate also benefited from two order cancellations, which generated $1 million of gross profit or an incremental 35 basis points to the margin rate in the quarter.

Gross profit as a percentage of revenues increased by 430 basis points to 24, 9% of revenues in the fourth fiscal quarter compared to one year ago.

Selling general and administrative expenses decreased by $1 million or 5% in the quarter versus the prior year attributable to lower fiscal fourth quarter variable performance based compensation expense.

The higher margin rate is in large part the result of favorable volume leverage and productivity initiatives strong project execution and subsequent closeouts as well as the pricing actions that have been aimed at offsetting inflationary pressures as we continue to navigate through a challenging supply chain landscape.

SG&A expenses were $20 million in the fiscal fourth quarter or nine 8% of revenue compared to 13, 2% of revenues a year ago on both volume leverage and lower expenses in the fourth fiscal quarter of 2023.

Albeit negligible the margin rate also benefited from two order cancellations, which generated $1 million of gross profit or an incremental 35 basis points to the margin rate in the quarter.

These results demonstrate our continued focus on cost management, while also focusing on the critical resource requirements necessary to execute on the order book.

In the fourth quarter of fiscal 2023, we reported net income of $26 $4 million generating $2 17 per diluted share compared to net income of $8 7 million or <unk> 73 per diluted share in the fourth quarter of fiscal 2022.

We generated $77 million of operating cash flow in the fiscal fourth quarter driven by early cycle advanced payments on the projects added to the order book over the past couple of quarters. In addition to generally strong working capital performance across the business through this period.

These results demonstrate our continued focus on cost management, while also focusing on the critical resource requirements necessary to execute on the order book.

Capex spending during the quarter was $3 $8 million with the capacity expansion at our offshore facility in Houston attributable to a large portion of the spending during the quarter.

In the fourth quarter of fiscal 2023, we reported net income of $26 $4 million generating $2 17 per diluted share compared to net income of $8 $7 million or <unk> 73 per diluted share in the fourth quarter of fiscal 2022.

Now recapping, our total year fiscal 2023.

Revenues of $699 million increased by $167 million or 31% compared to fiscal 2022.

Orders were $1 4 billion nearly double fiscal 2022 orders of $718 million led by the strength in oil and gas and petrochemical end markets, coupled with the sustained market activity in the utility sector as well as the incremental growth and all of the other end markets.

Capex spending during the quarter was $3 $8 million with the capacity expansion at our offshore facility in Houston attributable to a large portion of the spending during the quarter.

Gross profit as a percent of revenues grew 510 basis points year over year to 21, 1% or $148 million.

Now recapping, our total year fiscal 2023.

Demonstrating continued success in offsetting inflationary headwinds and supply chain challenges, while also leveraging higher volume and productivity initiatives throughout fiscal 2023.

Revenues of $699 million increased by $167 million or 31% compared to fiscal 2022.

Considering these factors in addition to the quality of our backlog, we do anticipate that we can maintain this profitability level on a total year basis in fiscal 2024, notwithstanding the lower volume and profitability impact, resulting from seasonality in the first fiscal quarter of 2024.

Selling general and administrative expenses were higher by $8 million versus the prior year.

Gross profit as a percent of revenues grew 510 basis points year over year to 21, 1% or $148 million demonstrating continued success in offsetting inflationary headwinds and supply chain challenges, while also leveraging higher volume and productivity initiatives.

Overall net SG&A expenses as a percentage of revenues were lower versus the prior year by 200 basis points at 11, 3% of revenues in fiscal 2023 versus 13, 3% in the prior year.

Throughout fiscal 2023.

We reported net income of $54 $5 million or $4 50 per diluted share compared to $13 7 million or $1 15 per diluted share in the prior year.

During fiscal 2023 recognized 38 per diluted share of gains from unusual items, which include order cancellations and a non cash tax credit, resulting from the reversal of a valuation allowance previously established in our United Kingdom entity.

Selling general and administrative expenses were higher by $8 million versus the prior year.

Overall net SG&A expenses as a percentage of revenues were lower versus the prior year by 200 basis points at 11, 3% of revenues in fiscal 2023 versus 13, 3% in the prior year.

Total year fiscal 2023 operating cash flow generated was $183 million versus a cash usage of $4 million in the prior year.

We reported net income of $54 $5 million or $4 50 per diluted share compared to $13 7 million or $1 15 per diluted share in the prior year.

Sure.

At the end of fiscal 2023, we had cash and short term investments of $279 million $163 million higher than our fiscal 2022 year end position, reflecting the growth in our backlog and the associated advanced payments for the large industrial projects combine.

During fiscal 2023, we recognized 38 cents per diluted share of gains from unusual items, which include order cancellations and a non cash tax credit, resulting from the reversal of a valuation allowance previously established in our United Kingdom entity.

With strong working capital management.

As we navigate through the coming fiscal year, we anticipate that our cash balance will continue to build as a result of the large projects in backlog before cash levels plateau, and ultimately recede somewhat towards the middle or the back half of fiscal 2024 as a direct result of increasing.

Total year fiscal 2023 operating cash flow generated was $183 million versus a cash usage of $4 million in the prior year.

Working capital requirements in order to support project execution.

The company holds zero long term debt.

Finally in October 2023, we entered into a third amendment of our credit facility with Bank of America and included Texas Capital Bank is an additional lender under this agreement.

<unk> combined with strong working capital management.

Combined this amendment increased our facility capacity to $150 million from the previous ceiling of $125 million.

As we utilize this facility solely for commercial letters of credit we felt that this was a prudent action in order to ensure our continued success across our end markets.

Looking forward, we remain optimistic that the commercial momentum across our core end markets will remain robust throughout fiscal 2024.

<unk> capital requirements in order to support our project execution.

The company holds zero long term debt.

Finally in October 2023, we entered into a third amendment of our credit facility with Bank of America and included Texas Capital Bank is an additional lender under this agreement.

We are also encouraged by the profitability, resulting from the operating leverage as well as the commercial levers implemented over the past several quarters and while we will remain acutely focused on executing our growing backlog as we navigate through fiscal 2024.

Combined this amendment increased our facility capacity to $150 million from the previous ceiling of $125 million.

As we continue to assess the impact of these levers and associated quality of our backlog.

Notwithstanding the typical project challenges of timing and mix, we anticipate our total year margins for fiscal 2024 to be similar to what we experienced in fiscal 'twenty three.

As we utilize this facility solely for commercial letters of credit we felt that this was a prudent action in order to ensure our continued success across our end markets.

Looking forward, we remain optimistic that the commercial momentum across our core end markets will remain robust throughout fiscal 2024.

Considering these variables in addition to the strong commercial outlook across most of our end markets as well as our liquidity position and the strength of our balance sheet. We are confident that we can sustain the solid results that we've delivered in fiscal 2023 and continue this into fiscal 2024.

We're also encouraged by the profitability, resulting from the operating leverage as well as the commercial levers implemented over the past several quarters and while we will remain acutely focused on executing our growing backlog as we navigate through fiscal 2024.

At this point, we'll be happy to answer your questions.

We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please.

As we continue to assess the impact of these levers and associated quality of our backlog notwithstanding the typical project challenges of timing and mix, we anticipate our total year margins for fiscal 2024 to be similar to what we experienced in fiscal 'twenty three.

Press Star then two.

Our first question comes from John <unk> with Sidoti and company. Please go ahead.

Good morning, guys and thanks for taking the questions and congratulations on a great quarter.

I'd like to start with the bookings profile.

The incoming order book of $171 million, if I compare it to the <unk>.

At this point, we'll be happy to answer your questions.

10 years prior to fiscal 2023, roughly doing about $150 million of incoming order book.

But we just came off of two consecutive quarters of over $500 million of bookings.

Bookings can.

Can you kind of put into context, what the opportunity profile looks like what you would expect the booking profile looks like in the coming year.

At any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Good morning, John and thanks for the comments and the question Brett.

Our first question comes from John <unk> with Sidoti and company. Please go ahead.

Yes.

I appreciate the lead in on the question on the two previous quarters, a little bit of timing of course and that Q3, what was going to book and as we went into Q4, we were very pleased with the 171 net.

Good morning, guys and thanks for taking the questions and congratulations on a great quarter.

I'd like to start with the bookings profile.

Incoming order book of $171 million, if I could.

For the quarter when I look at what made up in the sectors of the quarter. It was.

Perry to the 10 years prior to fiscal 2023, you roughly doing about $150 million of incoming order book.

Yes.

Kind of on average with the core oil and gas good strong utility.

Our content in the fourth quarter, along with a good contribution to the new sector that we're reporting out in the commercial and light industrial market as I look forward.

But we just came off of two consecutive quarters of over $500 million of bookings can.

Can you kind of put into context, what the opportunity profile looks like what you would expect the booking profile looks like in the coming year.

I think that cadence continues.

There weren't any mega projects in the Q4, given given the run we've had in the previous three quarters to Q4, but that said in my prepared comments activity is still robust.

Good morning, John and thanks for the comments and the question Brett.

Yes, I appreciate the lead in on the question on the two previous quarters, a little bit of timing of course and that Q3, what was going to book and as we went into Q4, we were very pleased with the 171 net.

In fact, you asked a question, which I was thinking about as well.

Repaired for today, you asked me a question a call or two about our we'd have time or where are we at relative to that.

<unk>.

For the quarter when I look at what made up in the sectors of the quarter. It was.

My answer to that last call Theres still a lot out there. We're very engaged timing is a little bit more uncertain given the run we just went through over the last 12 to 18 months, but there's still a lot in front of us.

Yes.

Kind of on average with the core oil and gas good strong utility.

Our content in the fourth quarter, along with a good contribution to the new sector that we're reporting out in the commercial and light industrial market as I look forward.

Okay, and just to narrow it down you mentioned also in the press release and in your prepared comments that we should be cognizant about the seasonality of Q1 versus Q4.

I think that the cadence continues.

There weren't any mega projects in the Q4, given given the run we've had in the previous three quarters to Q4, but that said in my prepared comments activity is still robust. There is in fact, you asked a question, which I was thinking about as we prep.

And looking back again.

Covid.

Normal seasonal revenue declines II bolt it to be around 15% or so.

Prepared for today, you asked me a question a call or two about our we'd have time or where are we at relative to that.

In Q1 versus Q4, but we've had some real strong bookings how.

How should we think about the seasonality on a sequential basis this year versus historical norms.

Most of my my answer in that last call. It's there's still a lot out there. We're very engaged timing is a little bit more uncertain given the run we just went through over the last 12 to 18 months, but there's still a lot in front of us.

Good morning, John This is Mike I'll take that one given where we are with our backlog very healthy healthy backlog as we talked about in the prepared comments.

I would kind of calibrate that.

Okay, and just to narrow it down you mentioned also in the press release.

A little more aggressive than the typical 15% that we saw.

Comments that we should be cognizant about the seasonality of Q1 versus Q4 and looking back again pre.

<unk> historically, probably somewhere in the 10% range.

This coming year.

Pre COVID-19.

Got it got it.

Normal seasonal revenue declines I eyeball that to be around 15% or so.

I'll just ask one more question if I go back into queue.

Gross margin profile has been outstanding in the last couple of quarters.

In Q1 versus Q4, but we've had some real strong bookings.

But you've kind of indicated that fiscal 'twenty four should be more like the full year tally.

Should we think about the seasonality on a sequential basis this year versus historical norms.

Versus the full year tally.

Good morning, John This is Mike I'll take that one given where we are with our backlog very healthy healthy backlog as we talked about in the prepared comments.

What's the primary counterweight that it makes it tougher to hold the second half of 2023 gross margins on a go forward basis.

I kind of calibrate that.

The.

One is just timing quarter to quarter. So as we framed up the prepared comments that Mike shared in his remarks.

Little more aggressive than the typical 15% that we've seen historically, probably somewhere in the 10% range.

The project is it is always timing so even with the backlog that we have there's still challenges quarter to quarter on timing.

This coming year.

Holds on projects changes, where can we pull things into move slots that fundamental part of our model never changes even with the rise in the backlog. So Q4 looking back over the number of years.

Got it got it.

I'll just ask one more question if I go back into queue.

Gross margin profile has been outstanding in the last couple of quarters.

You profiled this morning, we do well given the timing.

But you've kind of indicated that.

Fiscal 'twenty four should be more like the full year tally.

When our fiscal lays against the end of the calendar year construction schedules and people are getting things done and closeouts.

The full year tally.

What's the primary counterweight that it makes it tougher to hold the second half 'twenty two 'twenty three gross margins on a go forward basis.

But Q1 definitely both both on the factory side with productivity and some ramp downs and ramp ups and then just timing of people in the office getting things done and signed in the house is always a challenge from the November to end of the year run.

Uh huh.

The.

The big one is just timing quarter to quarter. So as we framed up the prepared comments that Mike shared in his remarks.

And if I can add John.

If we calibrate on our trailing 12 months.

The project business is always timing, so even with the backlog that we have there is still challenges quarter to quarter on timing holds on projects changes, where can we pull things into move slots that that fundamental part of our model never changes even with the rise in the backlog. So Q4 looking back over the number of years that you you profiled this morning, we do.

Right.

Gross profit.

21, 1% ex unusuals, 28%, that's kind of the range that we're looking at going into 2024 at the low Twenty's and Thats what were targeting the business yet.

Okay, Thanks, guys I'll get back into queue.

Well given the timing.

Okay.

When our fiscal lays against the end of the calendar year construction schedules and people are getting things done and closeouts.

So again, if you have a question. Please press Star then one our next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, Brett Good morning, Mike.

Good morning.

Brad can you talk a little bit about.

LNG landscape going forward.

The challenge from the November to end of the year run.

And if I could add Jan.

Are there still big projects being planned and maybe what about.

If we calibrate on our trailing 12 months.

Rate of gross profit to.

Additional capacity.

Being added at current.

21, 1% ex unusuals, 28%, that's kind of the range that we're looking at going into 2024 at the low Twenty's and Thats what were targeting the business yet.

Existing facilities I read a lot about.

Alan New LNG facilities, I guess, sometimes I get a little confused what's what's possible and what's not can you discuss or.

Okay, Thanks, guys I'll get back into queue.

A little bit about what.

Yes.

The LNG opportunities.

Again, if you have a question. Please press Star then one our next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

<unk>.

Thanks, John Good morning.

So as I mentioned, a couple a couple of times last throughout the last couple of calls really really pleased with policy position on where we stand in the market on the domestic LNG.

Brett Good morning, Mike.

Morning, Brett.

Brad can you talk a little bit about the LNG landscape going forward.

Landscape I don't think there was a project last year that happens that we werent involved with some some capacity, including the ones that certainly that we brought brought home and booked as I look out there are a number of LNG expansions and some greenfield that are still sitting out there.

Are there still big projects being planned and maybe what about additional capacity.

Being added at current at existing facilities.

Read a lot about the new LNG facilities, but I got it I guess, sometimes I get a little confused what's what's possible and what's not.

Comment earlier.

Mr. Frans Rab that Theres still some uncertain times.

Circumstance around it but if I go back two years prior to the way that we started a year ago last summer the cost out the estimating and working with the engineering firms very very active on a lot of these too.

Can you discuss a little bit about what what are the LNG opportunities.

<unk>.

Thanks, John Good morning.

To size them up with the engineering partners and clients and then you add into that the growing.

So as I mentioned, a couple a couple of times last throughout the last couple of calls really really pleased with policy position on where we stand in the market on the domestic LNG.

The business around hydrogen we're seeing a number of those opportunities that are sizable and then there is on the renewable side around batteries and how those are going to get applied to vary from utility scale, all the way down to the EV drive in the IRI money, we're seeing a number of process plants as well in the future. So.

The landscape I don't think there was a project last year that happens that we werent involved with some some capacity, including the ones that certainly that we brought in brought home and booked as I look out there are a number of LNG expansions and some greenfields that are still sitting out there.

Again.

No comment earlier, there to Mr friends, Rab that theres still some uncertain times.

Kind of the same sort of comment around timing scope, what's right for Paul but again the activity is very broad much more broad than it was just LNG two years ago, but we feel pretty good about all three sectors looking forward okay.

Circumstance around it but if I go back two years prior to the way that we started a year ago last summer the cost out the estimating that working with the engineering firms very very active on a lot of these too.

Alright.

Conversations with your clients as to 2024 is going to be an election year.

To size them up with the engineering partners and clients and then you add into that the growing.

I don't know.

Who's going to win who's going to lose but.

Business around hydrogen we're seeing a number of those opportunities that are sizable and then there's a on the renewable side around batteries and how those are going to get applied to vary from utility scale, all the way down to the EV drive in the IRI money, we're seeing a number of process plants as well in the future. So.

If we have a executive branch, that's a little bit more friendly towards oil and gas.

Would you see any significant change in in the capital spending programs.

Of your oil and gas.

Clients.

Under a new regime.

Again.

I mean, I think long term Jon it certainly could have an impact.

It does every administration, but there is always a time phasing to it if I go back to the administration change.

That happened in the last election.

And in your conversations with your clients as to 2024 was going to be an election year and yeah I don't know.

Was more regulation put in place I mean, they are just simply was we saw projects go on hold the renew environmental studies and reduce on the engineering side, we can see it all way down to the design and how theyre going to power the facilities from having onsite turbines to putting all electric designs. So a lot of impact studies were done in it reworked some projects.

Who's going to win who's going to lose but you know if we have a.

Executive branch, that's a little bit more friendly towards oil and gas.

Would you see any significant change in in the capital spending programs.

We are we are starting to see again not to whether you believe it is good or not we are starting to see some projects with more the IRI credits leaking into some of the projects.

Of your oil and gas clients.

You know on under a new regime.

Right now.

I don't I mean, I think long term Jon it certainly could have an impact as it does every administration, but there's always a time phasing to it if I go back to the administration change that happened in the last election, there was more regulation put in place I mean, they're just simply was we saw projects go on hold the renew environmental studies and reduce on the engineer.

So yes, I think clearly if we have an administration change it will have an effect if it if it turns parties from from the current regime.

I think it would have an impact on the core oil and gas stuff longer term for sure. Okay. Thank you, Mike you talked a little bit about.

The cash flow and cash balances are up $279 million and you expect them to build a little bit here before fading in the second half.

Bring side, we can see it all way down to the design and how theyre going to power the facilities from having onsite turbines to putting all electric designs. So a lot of impact studies were done in it reworked some projects.

When you look at the $279 million how much of it.

I could say is yours as opposed to cash.

We are we are starting to see again not to whether you believe it is good or not we are starting to see some projects with more the IRI credits leaking into some of the projects.

Cash advances.

Okay.

Hey, John real quick spread.

Just realize I missed the back part of your question capacity.

Right now.

We are looking at an additional expansion in 24. So we did the one in 'twenty three we're looking at our production capacity at one of our facilities.

Yeah, I think clearly if we have an administration change it will have an effect if it if it turns parties from from the current regime.

I will report on that in Q2.

I think it would have an impact on the core oil and gas stuff longer term for sure. Okay. Thank you, Mike you talked a little bit about the.

And John to address your question.

This is kind of the rule of thumb for for US we typically.

Earmark about 15, or so percent of revenues to working capital.

Your cash flow and our cash balances are up $279 million and you expect them to build a little bit here before fading in the second half but.

This new facility that we just entered into that I spoke about in the prepared comments.

You know when you look at the $279 million how much of it if I could say it is yours as opposed to a cash advances.

Third to hold 60 $60 million of liquidity.

At any point in time, so you kind of do that math.

Okay.

You get a number in the range of $200 million. Okay, alright, Thank you very much.

Hey, John real quick spread.

I just realized I missed the back part of your question capacity.

Yes.

Looking at an additional expansion in 2004, so we did the one in 'twenty three we're looking at our production capacity at one of our facilities in 'twenty four and we'll report on that in Q2, okay.

The next question comes from John <unk> with Sidoti <unk> Company. Please go ahead.

Yes, I guess.

Yes, just a little bit about the.

And John to address your question.

The tax rate on a go forward basis.

This is kind of a rule of thumb for for US we typically.

What kind of tax rates building into our models for fiscal 2024.

Earmark about 15, or so percent of revenues to working capital.

Yes.

Building, an ETR of 24% on a global basis Jim.

This new facility that we just entered into that I spoke about in the prepared comments.

Okay.

And what's the Capex budget, what was the final Capex budget for 2023, and we expect to win in 2024.

The old 60 $60 million of liquidity.

At any point in time, so you kind of do that math.

We spent $7 $8 million in 2023, a large portion of that as I mentioned was the offshore.

You get a number in the range of $200 million. Okay, alright, Thank you very much.

Yes.

Capacity expansion.

The next question comes from John <unk> with Sidoti <unk> Company. Please go ahead.

In 2024, as Brent mentioned, we are considering some other capacity initiatives.

Yeah I guess.

It could move the move the number as we navigate through the early part of 'twenty four.

I guess, just a little bit about the <unk>.

Tax rate on a go forward basis.

And what should be a baseline number then.

What kind of tax rates, we are building into our models for fiscal 2024.

Excluding expansion maybe.

Yes.

Typically I would I would say probably $4 million to $5 million would be our typical spend per annum.

Building, an ETR of 24% on a global basis John.

Okay.

But then you have some of these some of these other anomalies that you have to.

And what's the Capex budget, what was the final Capex budget for 2023, and we expect to win in 2024.

Put on top of that.

Okay.

We spent $7 $8 million in 2023, a large portion of that as I mentioned was the offshore.

Okay, and I guess, maybe just one more question about the cadence of revenue recognition in 2024.

Capacity expansion.

You typically have a fair amount of the book business flow through but.

In 2024, as Brent mentioned, we are considering some other capacity initiatives.

We've talked about the seasonality the first quarter.

It could move the move the number as we navigate through the early part of 'twenty four.

The seasonality of the fourth quarter.

Q2, and Q3 look similar or the or.

And what should be the baseline number then.

Is there a.

Improving profile as the year progresses.

Excluding the expansion maybe.

Yes, I think if you looked at the kind of the trajectory of past fiscal years I don't think we would see a different trajectory.

Typically I would I would say probably $4 million to $5 million would be our typical spend per annum.

But then you have some of these some of these other anomalies that you have to you have to.

First quarter will be softer than the other three and then it'll ramp up <unk> and then <unk> is typically the strongest quarter of the year.

Put on top of that.

Okay. Okay.

Okay, and I guess, maybe just one more question about the cadence of revenue recognition in 2024.

I think we talked about that you want to call to you asked a question about spikes John.

I think it's pretty level level of laid out the way, we kind of entered kind of finish up 23 and kind of do the planning.

You typically have a fair amount of the book business flow through but we've talked about the seasonality the first quarter and the seasonality of the fourth quarter.

<unk>.

Pretty steady as it goes just following the trends.

And I guess one last question. If I may are you still seeing a fair amount of a smaller book and turn jobs flowed through the P&L or is this a project based work.

Q2, and Q3 look similar or is it or is there a.

Improving profile as the year progresses.

And does that affect the margin profile at all one way or the other.

Yeah, I think if you looked at the kind of the trajectory of past fiscal years I don't think we would see a different trajectory.

We absolutely.

Mind, all of our operating units to take care of our customers, we those small jobs and whether there are service led.

First quarter will be softer than the other three and then it'll ramp up <unk> and then <unk> is typically the strongest quarter of the year.

Quick turns because of there was an event at our facility.

That needs quick quick attention on the service side or or.

We talked about that one would want to call to you asked a question about spikes John I don't I don't.

Your only job one or two sessions absolutely.

It's pretty level level laid out the way, we kind of entered kind of finish up 23, and kind of did the planning pretty pretty steady as it goes just following the trends.

We we don't lose sight of those at all and we're constantly reminding everybody to not just chase the big ones.

Okay. Thank you thanks for taking my follow ups.

And I guess, one last question if I may I used to seeing a fair amount of smaller book and turn jobs come through the P&L or is this all project based work.

Thanks, John.

This concludes our question and answer session I would like to turn the conference over to Brett Cope for any closing remarks.

Does that affect the margin profile at all one way or the other.

Thank you Dave as you've heard from both Mike and me. This morning, we are very pleased with our fiscal 2023 and the fantastic financial performance that the policy and delivered IMAX.

We absolutely are remind all of our operating units to take care of our customers.

Small jobs.

Although there are service led.

I am extremely proud and appreciative of every one of our employees and how they are meeting the challenge the market has presented to our company.

Quick turns because of there was an event at our facility.

That needs quick quick attention on the service side or or gear only job one or two sessions absolutely.

Based upon the markets that we serve we continue to believe that fiscal 2024 will be another strong year for Paul 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 next quarter.

We we don't lose sight of those at all and we're constantly reminding everybody to not just chase the big ones.

Okay. Thank you thanks for taking my follow ups.

John.

This concludes our question and answer session.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

To turn the conference over to Brett Cope for any closing remarks.

Thank you Dave as you've heard from both Mike and me. This morning, we are very pleased with our fiscal 2023 and the fantastic financial performance, that's a policy and delivered I'm extremely.

We are proud and appreciative of every one of our employees and how they are meeting the challenge the market has presented to our company.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Q4 2023 Powell Industries Inc Earnings Call

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