Q1 2024 Powell Industries Inc Earnings Call

January 31, 2024

Operator: Good morning and welcome to the Powell Industries Fiscal First Quarter 2024 Results Conference Call. All participants will be in 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 star, then one on your telephone keypad. To withdraw your question, please press star, then two.

Operator: Please note, this event is being recorded. I would now like to turn the conference over to Ryan Coleman, Alpha IR Investor Relations. Please go ahead.

Ryan Coleman: Thank you and good morning everyone. Thank you for joining us on the Powell Industries conference call today to review fiscal year 2024 first quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO, and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be made available via webcast by going to the company's website, powellind.com; or a telephonic replay will be available until February 8. The information on how to access the replay was provided in yesterday's earnings release.

Ryan Coleman: Please note that information reported on this call speaks only as of today, January 31st, 2024, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of 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

Brett Alan Cope: For more information, please refer to the company's filings with the Securities and Exchange Commission. Thanks, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2024 first quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Powell delivered a strong start to our fiscal year, as our first quarter was very much a continuation of the trends and strong results we saw.

Please signal a conference specialist by pressing the star key followed by zero.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad 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 Alpha IR Investor Relations. Please go ahead.

Thank you and good morning, everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year 2024 first quarter results with me on the call are Brett Cope Powell's chairman and CEO and Mike Metcalf Powell's CFO, there will be a replay of today's call and it will be made available via webcast by going to the companies.

Good morning, and welcome to the Powell industries fiscal first quarter 'twenty 'twenty four results conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

<unk> Powell <unk> dot com or a telephonic replay will be available until February the.

The information on how to access the replay was provided in yesterday's earnings release.

After today's presentation there'll be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Please note that information reported on this call speaks only as of today January 31, 2024, and therefore, you're advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.

Please note this event is being recorded.

I would now let's turn the conference over to Ryan Coleman Alpha I, Our Investor Relations. Please go ahead.

This conference call includes certain statements, including statements related to the Companys expectations of its future operating results that may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 invest.

Investors are cautioned that such forward looking statements involve risks and uncertainties net actual future results may differ materially from those projected in these forward looking statements.

It will be a replay of today's call and it will be made available via webcast by going to the company's website Powell I N. The dot com or a telephonic replay will be available until February eight inch.

These risks and uncertainties include but are not limited to competition and competitive pressures sensitivity to general economic and industry conditions.

The information on how to access the replay was provided in yesterday's earnings release.

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 Brent.

Please note that information reported on this call speaks only as of today January 31, 'twenty 'twenty four and therefore, you're advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.

Thanks, Ryan and good morning, everyone. Thank.

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 invest.

Thank you for joining us today to review <unk> fiscal 2024 first quarter results.

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

<unk> delivered a strong start to our fiscal year as our first quarter was very much a continuation of the trends and strong results we saw in the prior quarter.

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.

Despite what is typically a seasonally slow period, we recorded $198 million of new orders, which was sequentially higher by 15% and in line with our expectations for a more normalized but still strong cadence of project bookings.

These risks and uncertainties include but are not limited to competition and competitive pressures sensitivity to general economic and industry conditions inter.

We also delivered revenue growth of 53% compared to the prior year as we saw broad strength across our petrochemical oil and gas utility and commercial and other industrial sectors, Mike will provide additional detail on our revenue growth by market sector in a moment.

Thanks, Ryan and good morning, everyone. Thank.

Thank you for joining us today to review policy fiscal 2024 first quarter results.

Our strong revenue growth coupled with maintaining our focus on both project execution and operational efficiency are all working together to help deliver significantly improved profitability.

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

<unk> delivered a strong start to our fiscal year as our first quarter was very much a continuation of the trends and strong results we saw in the prior quarter.

Our gross margin in the quarter was 24, 8%.

An improvement of 950 basis points compared to last year and the best first quarter gross margin performance since fiscal 2010.

It also puts us comfortably on track to deliver on our previously communicated guidance of gross margin in the low <unk> in fiscal 2024.

On the bottom line, we recorded net income of $24 million or $1 98 per diluted share, which was significantly above net income of $1 2 million or <unk> 10 per diluted share in the year ago period.

Our backlog remains very strong and was roughly unchanged sequentially at $1 3 billion.

Our strong revenue growth coupled with maintaining our focus on both project execution and operational efficiency are all working together to help deliver significantly improved profitability.

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

Gross margin in the quarter was 24, 8% an improvement of 950 basis points compared to last year and the best first quarter gross margin performance since fiscal 2010.

The capacity expansion of our Houston facility on the Gulf Coast is effectively completed as we noted last quarter.

This investment was planned last year to give us expanded fabrication and integration support for large power control rooms, especially for projects that support delivery and transport by water access.

It also puts us comfortably on track to deliver on our previously communicated guidance of gross margin in the low twenties in fiscal 2024.

Also as we noted last quarter, we expect to launch a more modest expansion.

On the bottom line, we recorded net income of $24 million or $1 98 per diluted share, which was significantly above net income of $1 2 million or 10 cents per diluted share in the year ago period.

Of our electrical products factory based in Houston.

This $11 million expansion will take approximately 18 months to complete.

The investment coincides with our development plans to release new products in support of our initiatives, helping facilitate future growth across the customers and markets we serve.

Our backlog remains very strong.

Was roughly unchanged sequentially at $1 3 billion.

We remain comfortable with our current staffing levels and are confident that we have the right people in place to meet the demanding project schedules of our current backlog.

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

The capacity expansion of our Houston facility on the Gulf Coast is effectively completed as we noted last quarter.

Our teams also continued to successfully manage price fluctuations of key materials as well as the general availability of select engineered components.

We continue to see encouraging levels of project activity within our oil gas and petrochemical markets. As we have noted for some time, we believe the fundamentals of the U S. Natural gas market remain favorable for our core markets to support many global economic and environmental goals over the long term horizon.

Also as we noted last quarter, we expect to launch a more modest expansion.

Of our electrical products factory based in Houston.

This $11 million expansion will take approximately 18 months to complete.

And I'll leave time to actions by the current U S administration will most likely serves a slightly slow the pace of project schedules, creating a bit more uncertainty around project timing over the near term.

The investment coincides with our development plans to release new products in support of our initiatives, helping facilitate future growth across the customers and markets we serve.

We also continued to see healthy activity across the other markets, where we compete.

We remain comfortable with our current staffing levels and are confident that we have the right people in place to meet the demanding project schedules of our current backlog.

We enjoyed solid contributions to the order book in our first quarter.

And our newer sector of commercial and other industrial sectors, we experienced solid activity during the quarter for markets such as data centers.

Our teams also continued to successfully manage price fluctuations of key materials as well as the general availability of select engineered components.

But would also increase uncertainty and lithium related projects in support of future electric vehicle demand and large scale battery storage.

Energy transition projects that had been in process for some time, including hydrogen biofuels and carbon capture and sequestration.

To be active and will be larger contributors to our financial results in fiscal 2024 and 2025.

And I'll leave time to actions by the current U S administration, well most likely serves a slightly slow the pace of project schedules, creating a bit more uncertainty around project timing over the near term.

Our near and medium term priorities remain unchanged fiscal 2024.

We are focused on growing our electrical automation platform <unk>.

Expanding our existing services franchise, and diversifying and expanding our electrical products and solutions portfolio.

We also continued to see healthy activity across the other markets, where we compete.

We enjoyed solid contributions to the order book in our first quarter and our newer sector of commercial and other industrial sectors, we experienced solid activity during the quarter for markets such as data centers.

In summary.

Our fiscal 2024 is off to a strong start with another quarter of nearly $200 million of booked orders and significantly improved profitability compared to the prior year.

But we'd also know increased uncertainty and lithium related projects that support future electric vehicle demand and large scale battery storage.

Our backlog remains strong with a healthy mix of projects that we believe will sustain our profitability through fiscal 2024 and into 2025.

Energy transition projects that had been in process for some time, including hydrogen biofuels and carbon capture and sequestration continues to be active and will be larger contributors to our financial results in fiscal 2024 and 2025.

The markets. We serve continues to exhibit encouraging levels of project activity and remained favorable and we continue to monitor recent developments in select markets for their effect on the timing of future projects.

Our near and medium term priorities remain unchanged in fiscal 2024.

We are highly confident that our financial position commitment to execution and continued progress against our strategic initiatives will support another successful year for Paul with that I'll turn the call over to Mike to walk us through more of our financial results in greater detail.

We are focused on growing our electrical automation platform <unk>.

Expanding our existing services franchise, and diversifying and expanding our electrical products and solutions portfolio.

Thank you Brett and good morning, everyone.

In summary.

Our fiscal 2024 is off to a strong start with another quarter of nearly $200 million of booked orders and significantly improved profitability compared to the prior year.

In the first quarter of fiscal 2024, we reported net revenue of $194 million compared to $127 million or 53% higher versus the same period in fiscal 2023.

Our backlog remains strong with a healthy mix of projects that we believe will sustain our profitability through fiscal 2024 and into 2025.

New orders booked in the first fiscal quarter of 2024 or $198 million, which was 7% lower than the same period, one year ago as the prior period included a large LNG project bookings.

As our continued effort on end market diversification continues new bookings and utilities as well as commercial and other industrial markets improved in the current quarter compared with the first quarter of fiscal 2023.

We are highly confident that our financial position and commitment to execution and continued progress against our strategic initiatives will support another successful year for Powell.

That I will turn the call over to Mike to walk us through more of our financial results in greater detail.

Our book to Bill ratio was 1.0 times in the current period, maintaining the fiscal first quarter ending backlog at $1 $3 billion 620 million higher versus one year ago and flat sequentially.

Thank you Brett and good morning, everyone.

In the first quarter of fiscal 2024, we reported net revenue of $194 million compared to $127 million or 53% higher versus the same period in fiscal 2023.

Compared to the first quarter of fiscal 2023 domestic revenues improved by 60% to $160 million, while international revenues were 28% higher driven by increased project volume across our UK and Canadian facilities in.

New orders booked in the first fiscal quarter of 2024 or $198 million, which was 7% lower than the same period, one year ago as the prior period included a large LNG project booking.

In total international revenues were up by $7 million.

To $34 million in the first fiscal quarter.

From a market sector perspective versus the first quarter of fiscal 2023 revenues across our industrial end markets maintained the positive momentum.

Our book to Bill ratio was 1.0 times in the current period, maintaining the fiscal first quarter ending backlog at $1 $3 billion 620 million higher versus one year ago and flat sequentially.

Our petrochemical sector was higher by 26%, while oil and gas sector nearly doubled higher by 92%.

Additionally, we experienced notable increases in both the utility and the commercial and other industrial market sectors, increasing by 43% and 45% respectively, reflecting our strategic focus on continued market diversification.

The traction sector was lower by 39% as this market sector remains soft.

In total international revenues were up by $7 million to $34 million in the first fiscal quarter.

Gross profit increased by 29 million to $48 million in the first fiscal quarter versus the same period, one year ago.

From a market sector perspective versus the first quarter of fiscal 2023 revenues across our industrial end markets maintained the positive momentum.

Gross profit as a percentage of revenue increased by 950 basis points to 24, 8% versus the same period, a year ago and roughly flat sequentially.

Our petrochemical sector was higher by 26%, while oil and gas sector nearly doubled higher by 92%. Additionally.

The margin rates exiting the backlog were driven largely largely by favorable volume leverage operational enhancements across most of our manufacturing facilities as well as our strong project execution.

We do anticipate based on the quality of our backlog and the trend of the margin rates over the past two to three quarters that we will sustain our margin levels in the low to mid twenties throughout fiscal 2024.

The traction sector was lower by 39% as this market sector remains soft.

Selling general and administrative expenses were $20 million in the current period higher by $3 5 million and increased variable performance based compensation versus the same period, one year ago.

Gross profit increased by 29 million to $48 million in the first fiscal quarter versus the same period, one year ago.

Gross profit as a percentage of revenue increased by 950 basis points to 24, 8% versus the same period, a year ago and roughly flat sequentially.

SG&A as a percentage of revenue decreased by 280 basis points to 10, 5% in the current fiscal quarter on the higher revenue base.

In the first quarter of fiscal 2024, we reported net income of $24 $1 million generating $1 98 per diluted share compared to a net income of $1 2 million or <unk> 10 per diluted share in the first quarter of fiscal <unk>.

Thousand 23.

During the first quarter of fiscal 2024, we generated $84 million of operating cash flow as we continue to build our cash balance, resulting from advanced project payments and working capital efficiencies.

Selling general and administrative expenses were $20 million in the current period higher by $3 5 million and increased variable performance based compensation versus the same period, one year ago.

A portion of which will be allocated to fund the projects and the order book as we execute our backlog.

SG&A as a percentage of revenue decreased by 280 basis points to 10, 5% in the current fiscal quarter on the higher revenue base.

Investments in property plant and equipment totaled $1 $2 million as we continue to target productivity enhancements across the business.

In the first quarter of fiscal 2024, we reported net income of $24 $1 million generating $1 98 per diluted share compared to a net income of $1 2 million or 10 cents per diluted share in the first quarter of fiscal <unk>.

At December 31, 2023, we had cash and short term investments of $355 million compared to 279 million at September 32023, and the company does not hold any debt.

23.

And.

Finally, yesterday, we announced a 1% increase to our common stock dividend.

This is the second consecutive year that the board has taken this action, albeit modest this increase demonstrates our prudent approach to improve shareholder returns, while also ensuring sufficient liquidity to fund our growing working capital requirements and growth aspirations.

A portion of which will be allocated to fund the projects and the order book as we execute our backlog.

Investments in property plant and equipment totaled $1 $2 million as we continue to target productivity enhancements across the business.

Looking forward, we remain encouraged by the commercial activity across most of our end markets and are optimistic that this will continue throughout fiscal 2024.

At December 31, 2023, we had cash and short term investments of $355 million compared to 279 million at September 32023, and the company does not hold any debt.

We do however, recognize some of the recent uncertainties in the macro environment that could have a timing impact on near term market activity.

Considering these factors and combined with both the quality and level of our backlog, we are well positioned to sustain our solid financial results that we delivered exiting fiscal 2023 and anticipate that this momentum will continue throughout fiscal 2024.

Yeah.

And finally yesterday, we announced a 1% increase to our common stock dividend.

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 telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

Looking forward, we remain encouraged by the commercial activity across most of our end markets and are optimistic that this will continue throughout fiscal 2024.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

We do however, recognize some of the recent uncertainties in the macro environment that could have a timing impact on near term market activity.

The first question is from John <unk> with Sidoti <unk> Company. Please go ahead.

Good morning, guys and congratulations on another great quarter.

I'd like to start with the gross margin profile in the first quarter I am curious was there any unusual items in there that that kept it at an elevated level in a seasonally weak period can.

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

We will now begin the question and answer session.

Can you just talk about that and.

To ask a question you May press Star then one on your telephone keypad.

And that's first and foremost.

Yes. Good morning, gentlemen, this is Michael I'll take that one.

If you were using a speakerphone please pick up your handset before pressing the keys.

First no there were no unusual nonrecurring events in the quarter.

To withdraw your question. Please press Star then two.

We've been very pleased with the margin rates as we exited the last two to three quarters and the margin expansion that we've seen resulting from a lot of the work that the team has done over the last 18 to 24 months.

At this time, we will pause momentarily to assemble our roster.

Yeah.

The first question is from John France, Rabb with Sidoti and company. Please go ahead.

It's really being driven by by.

By the volume and the operating leverage across the business really every division has got.

Good morning, guys and congratulations on another great quarter.

<unk> got very very healthy backlog.

We're seeing really really good project execution. So considering these variables. In addition to the size and quality of the backlog. We we have more confidence that we'll be able to sustain these these margin rates in the low <unk> low to mid twenties throughout the rest of the fiscal year.

I'd like to start with the gross margin profile in the first quarter I'm curious was there any unusual items in there that that kept it at an elevated level in a seasonally weak period.

Can you just talk about that and.

That's first and foremost.

Yeah. Good morning, John This is Mike I'll take that one.

Okay.

Excellent results on the gross margin profile.

First no there were no unusual nonrecurring events in the quarter.

Why could you take a step up in the gross margin profile, considering I assume you had some downtime.

In the first quarter.

Why couldn't it improve beyond this threshold on a go forward basis.

Yes, right now we are.

From a capacity standpoint.

It's really being driven by by.

Like I said every every division is quite quite loaded and we're seeing.

By the volume and the operating leverage across the business really every division has got.

Very very good volume leverage across.

Got it very very healthy backlog.

Every division in the business.

We're seeing really really good project execution. So considering these variables. In addition to the size and quality of the backlog. We we have more confidence that we'll be able to sustain these these margin rates in the low 20 low to mid twenties throughout the rest of the fiscal year.

Given that volume leverage on our fixed base.

We feel we feel pretty comfortable that.

That our range in the low <unk> to mid <unk> is probably a good range to target.

Okay fair enough.

Yes.

Cash on the books.

It's excellent results on the gross margin profile.

Can you talk a little bit.

When you start to draw down on that cash.

Why could you take a step up in the gross margin profile, considering I assumed you had some downtime in the <unk>.

For working capital needs how.

How should we think about that on a go forward basis, how do you think about it on a go forward basis.

In the first quarter.

Why couldn't it improve beyond this threshold on a go forward basis.

Sure sure.

Mentioned in the last earnings call as well, we were at $279 million last quarter.

Yeah, right now where we are.

From a capacity standpoint, where like I said every every division is quite quite loaded and we're seeing.

You did mentioned that we think it will plateau sometime early to mid fiscal 2024, I think we're close to that level and as we begin to execute these much larger projects in the backlog will begin to we will begin to draw down that cash that cash level probably.

Very very good volume leverage across most every division in the business.

Given that volume leverage on our fixed base.

We feel we feel pretty comfortable that.

That our range in the low twenties to mid Twenty's is probably a good range to target.

Mid mid year fiscal 2024.

Okay fair enough.

Any sense of how much cash will be drawn down Mike.

You have a lot of cash on the books.

Yes, Tim.

Can you talk a little bit.

Typically we earmark roughly 15% of the <unk>.

About when you start to draw down on that cash.

For working capital needs.

The volume level that revenue level to two working capital. So when you think about our backlog at $1 3 billion roughly 15% of that is going to be deployed for working capital that's roughly half of <unk>.

How should we think about that on a go forward basis, how do you think about it on a go forward basis.

Sure sure.

Mentioned in our last earnings call as well, we were at $279 million last quarter.

Half of the cash so we would expect to see a lot of that cash drawdown.

Did mentioned that we think it'll plateau sometime early to mid fiscal 2024, I think we're close to that level and as we.

Considering no other new big projects coming coming into fill the tail, but lot of it correct cash drawdown will occur in mid to late fiscal 'twenty four.

Again to execute these much larger projects in the backlog will begin to we will begin to draw down that cash the net cash level, probably mid mid year fiscal 2024.

Great that's very helpful and.

Maybe you could touch on this any thoughts about the administration's freeze new.

Any sense of how much cash will be drawn down Mike.

LNG plants does that impact you know can you just maybe talk about that a bit.

Yeah.

Typically we earmark roughly 15% of the of the.

I mean look John.

<unk> level the revenue level to two working capital. So when you think about our backlog at $1 3 billion roughly 15% of that is going to be deployed for working capital that's roughly half of the.

Fair comment.

Russell a lot with what where to put it in there. It is just for me personally and as the CEO, Paul very oddly timed and early tea leaves from our customers kind of the same thing.

Do I really think it will.

Half of the cash so we would expect to see a lot of that cash draw down.

Yes.

Stop projects I don't think so but it clearly is going to create a little bit more near term uncertainty on timing.

Considering no no other new big projects coming coming into fill the tail, but a lot of that Craig cash drawdown will occur in mid to late fiscal 'twenty four.

Given what <unk> explained how the not much I don't see much yet as to why.

Did what they did.

Looking at the other folks in this marketplace, along with our clients I think everybody's kind of scratching their head, but they did it.

Great that's very helpful and.

Maybe you could touching on this.

And I think we will.

Thoughts about the administration's freeze on our new <unk>.

Worked together and get away through it as quick as we can.

LNG plants does that impact you, yes, or no you just maybe talk about that a bit.

I tend to agree thanks for taking the questions guys I'll jump back into queue.

Okay.

Yeah, I mean look John.

The next question is from Jon Braatz with Kansas City Capital. Please go ahead.

For my prepared comment.

Russell a lot with what where to put it in there. It is just for me personally and as the CEO, Paul very oddly timed and.

Good morning, Brian Good morning, Mike.

<unk>.

On the gross margin front, Mike are you incurring or would you expect to incur as you go forward this year any overtime.

In early tea leaves from our customers kind of the same thing.

Do I really think it will.

I mean.

Stop projects I don't think so but it clearly is going to create a little bit more near term uncertainty on timing.

Charges.

Expenses.

In terms of labor.

Given what <unk> explained how they you know not much I don't I don't see much yet as to why they did what they did.

Yes, most of the divisions given my comments on the utilization capacity levels across the business are incurring modest levels of Ot.

Looking at the other folks in this marketplace along with our clients I think everybody is kind of scratching their head, but they did it.

As we as we execute the backlog.

Okay.

And I think we will.

Would you anticipate growing levels of OTT going going forward throughout the year.

Worked together and get our way through it as quick as we can.

I tend to agree thanks for taking the questions guys I'll jump back into queue.

No no theres a point of diminishing returns in.

Mhm.

The operating teams are on that quake quite strongly so no I wouldn't I wouldn't anticipate that Bret.

The next question is from Jon Braatz with Kansas City Capital. Please go ahead.

Good morning, Brian Good morning, Mike.

Brett.

Good morning, all.

On the Big picture front in terms of what the administration.

On the gross margin front, Mike are you incurring or would you expect to incur as you go forward this year any overtime.

Has done in terms of.

Obviously, it's a political decision delaying these.

These.

LNG.

Charges or expenses.

Expansions and new new facilities.

In terms of labor.

Is there any thought within the industry.

Yeah, most of the divisions given my comments on the utilization capacity levels across the business are incurring a modest levels of O T. A S.

That may be the interim administration, not only will delay it but they will.

Next these projects.

As we as we execute the backlog.

For climate change reasons and so on.

Okay, Okay, well, what would you anticipate growing levels of O T going going forward throughout the year.

Is there any consideration of that.

Amongst the industry.

Uh huh.

I mean, it would be hard to say that that that more severe outcome isn't on the thoughts and mines of certainly the owners as they're trying to work their way through.

No no theres a point of diminishing returns.

The operating teams are on that quake quite strongly so no I wouldn't I wouldn't anticipate that Bret.

Their project process of interacting with the government I wouldn't say, that's the case right now and I think everybody feels at least early on here that this is a a slight slowdown and things will get back on track it really doesn't seem to be a lot of practice.

Brett.

On the Big picture front in terms of what the administration.

Has done in terms of.

You know obviously, it's a political decision delaying these these LNG expansions in new new facilities.

Practical reasons, and if anything it seems to be.

Sure.

Is there any thought within the industry.

Again not to.

Be a political person here, but it's certainly from where I sit hertz to states and our global outlook for what we're trying to do around the world. So.

That maybe the interim administration, not only will delay it but they will.

Our next these projects for climate change reasons and so on is there any consideration of that amongst the industry.

I got to believe that's being echoed with.

Folks.

Much bigger <unk>.

Physicians in this not that myself and the interactions we've had with our clients.

Engineering partners would seem to indicate that as sort of a tender at the moment, yes, okay alright, okay. Thank you Brett.

I mean, it would be hard to say that that that more severe outcome isn't on the thoughts and minds of certainly the owners as they're trying to work their way through.

The next question is from John <unk> with Pinnacle. Please go ahead.

Their project process and interacting with the government I wouldn't say, that's the case right now and I think everybody feels at least early on here that this is a slight slowdown and things will get back on track and it really doesn't seem to be a lot of practical reasons and if anything it seems to be.

Thanks for taking my question.

On the LNG front I realize that.

We're not going to be canceling any existing projects or expansions.

Can you give us an idea of in the backlog how much of that backlog is LNG related at this point on a percentage basis roughly.

Uh huh.

You know again not to be.

Political person here, but it's certainly from where I sit it hurts to states and our global outlook for what we're trying to do.

Thinking back to so we started.

Around the world So I.

I got to believe that's being echoed with folks.

End of 'twenty, two sharing updates in the market, we never really quantified any any one job, we really can't John but it is given the size and depth and breadth of what you've experienced with power over the years.

Folks are much bigger positions.

Physicians in this or not and myself and the interactions we've had with our clients.

Engineering partners would seem to indicate that as sort of a tender at the moment yeah. Okay alright, okay. Thank you Brett.

Yes.

Sure.

The next question is from John <unk> with Pinnacle. Please go ahead Oh good morning, Thanks for taking my question.

About a quarter, 30% ish kind of in that range.

25% to 30%.

There's LNG related that's helpful.

On the LNG front I realize that a we're not going to be canceling any existing projects or expansions, but.

Very good.

The other question is you talked about the Capex expansion of $11 million I think.

Can you give us an idea of in the backlog how much of that backlog is LNG related at this point on a percentage basis roughly.

For one of the facilities what is the Capex budget for fiscal 'twenty four at this point.

Yes, John This is Mike typically are normal burn rate and Capex is roughly $4 5 million and as Brett mentioned.

Thinking back to so we started.

End of 'twenty, two sharing updates into the market, we've never really quantified any any one job, we really can't John but it is you know given the size and depth and breadth of what you've experienced with power over the years. It's.

We are.

We are initiating an expansion at one of our facilities here in Houston that is.

It is roughly $10 million to $11 million little suspect that timing when that would actually report out John just because the permitting process like always.

About a quarter, 30% ish kind of in that range.

Kind of like the other conversation with end of day whenever you get the government involved here.

25% to 30%, Okay, who's LNG related that that's helpful. Okay. Good.

So we're working through that now we're excited by it.

And.

The prospect of where we're going with the things we've shared in the calls last two years about getting getting some new products out in the market and the R&D teams and delivering for us.

The other question is you talked about the Capex expansion of 11 million I think.

For one of the facilities what is the Capex budget for fiscal 'twenty four at this point.

Okay. When do you expect that 11 million expansion to start and how long would it take to complete yes. We've started the process. We've got a we've got a prime contractor.

Yes, Jim This is Mike typically are normal burn rate and Capex is roughly $4 million to $5 million and as Brett mentioned.

I think in the next three to four months will probably go a little slower just as we kind of get through all the permits and we will use that time to hone in all our final construction cost. So I think in earnest sort of mid late summer and.

We are we are initiating an expansion at one of our facilities here in Houston that is is roughly $10 million to $11 million, yeah little soft like the timing when that would actually report out John just because the permitting process like always is.

And once we get going the bill the Bill time is too long quite frankly is tilt wall building over there today at the factory and the team came up with a really nice plan to go out the back side of the building and put into really nice base, adding the room, we need for the future so pretty excited to get going but we'll just have to get through that permitting process and then.

Kind of like the other conversation we've had today and then where you get the government involved you get a lot of them you get a lot of help so we're working through that now we're excited by it and and.

And.

The prospect of where we're going with the things we've shared in the calls last two years about getting getting some new products out in the market and what the R&D teams and delivering for us.

Sometime mid fiscal next year, we ought to be up and going.

Okay. So it sounds like you won't break ground until late summer in probably a year or so to complete it.

Okay.

Do you expect that 11 million expansion to start and how long would it take to complete yeah. We've started the process. We've got a we've got a prime contractor.

Correct.

I hope we can move the permitting process if thats. The case, we are absolutely ready to move quicker.

I think in the next three to four months will probably go a little slower just as we kind of get through all of the permits and we'll use that time to hone in all our final construction cost. So I think in earnest sort of mid late summer and.

Just have to get through the first three or four months, okay. Okay fair enough. Thanks, and good luck.

Yes.

The next question is a follow up from John <unk> with Sidoti <unk> Company. Please go ahead.

And once we get going the bill the build time is too long quite frankly is a tilt wall building over there today at the factory and the team came up with a really nice plan to go out the back side of the building and put into really a nice base, adding the room, we need for the future so pretty excited to get going but well just have to get through that permitting process and then.

Yeah guys.

I submitted about the tax rate is a little bit lower than expected in the quarter.

And then going on there that we should be cognizant of.

Yes Jen.

The lower effective tax rate relative to the U S. Statutory rate was driven by a one time favorable tax item relative to stock based compensation.

Sometime mid fiscal next year, we ought to be up and going.

Okay. So it sounds like you won't break ground until late summer and then probably a year or so to complete it that's correct.

So just to explain that a little further.

As you know our stock values appreciated considerably throughout 2023 and.

And as such the vesting price is significantly higher than the original grant price that difference when they actually vested generated a favorable tax benefit reducing.

I hope we can move the permitting process. If that's the case, we are absolutely ready to move quicker. We just have to get through the first three or four months, okay. Okay fair enough.

Thanks, and good luck.

The ETR percent, so that was kind of a one time one time item.

Yeah.

The next question is a follow up from John France, Redwood Sidoti and company. Please go ahead.

Was a benefit from a tax perspective in <unk>.

Yeah, guys I was just curious about the tax rate is a little bit lower than expected in the quarter.

So how should the tax number look on a go forward basis Mike.

Anything going on there that we should be cognizant of.

We are still targeting 24% ETR as we navigate through the remainder of the year.

Yes, Jen there.

Lower effective tax rate relative to the U S. Statutory rate was driven by a one time favorable tax item relative to stock based compensation.

Okay, Great and Brian I have asked you. This I think two quarters ago, and I want to revisit the question.

What inning do you put the order booking rate at.

Just to explain that a little further.

Let's revisit that now, especially in light of how good the most recent quarter was at 198.

As you know our stock values appreciated considerably throughout 2023.

Yes.

And as such the vesting price is significantly higher than the original grant price that difference when they actually vested generated a favorable tax benefit reducing the the ETR percent. So that was a kind of a one time one time item that.

Yes.

On the gas related.

Comments I made in the prepared remarks, Jon I still feel good I mean, clearly the uncertainty on timing has ticked up a little bit over the last few weeks.

So I anticipate it may draw out a little further but when I look at the other things that are going on in the energy transition.

It was a benefit from a tax perspective in <unk>.

So how should the tax number look on a go forward basis Mike.

There's still there's still a lot of activity are the uncertainties slowly increasing yes that was the reason for the comment also on the lithium side as commercial and industrial has been a great a great new market as we kind of build new channels.

We are still targeting 24% ETR as we navigate through the remainder of the year.

Okay, Great and Brett I've asked you. This I think two quarters ago, and I'm going to revisit the question.

Build onto Paul since the post pandemic, but.

What inning do you put the order booking rate at.

What we're just experiences how quick it's been down as well so theres still a lot of activity in that segment feel good about it in the near term but.

Let's revisit it now, especially in light of how good the most recent quarter. It was at 198.

Yeah.

Maybe slightly more uncertainty as we go out midterm.

On the gas related comments I made in the prepared remarks, Jon I still feel good I mean, clearly the uncertainty on timing, it's ticked up a little bit over the last few weeks.

Okay Fair enough. Thank you guys for taking my follow up alright.

Alright.

This concludes the question and answer session.

So I anticipate it may draw out a little further but when I look at the other things that are going on in the energy transition.

I'd like to turn the conference back over to Brett Cope for any closing remarks.

Thank you Gary as you've heard from Mike and me, we are pleased with our first quarter results and the momentum it provides through the balance of fiscal 2024.

You know there's still there's still a lot of activity are the uncertainties slowly increasing yeah that was the reason for the comment also on the lithium side with commercial and industrial has been a great a great new market as we kind of build new channels in the build out of Paul since the post pandemic, but oh.

And to our incredible employees.

Well done I am fortunate and proud to be a part of a group of talented individuals with power can do on full display and demonstrating a laser focus on the success of our customers.

With that thank you for joining us. This morning. We appreciate your continued interest in Powell and look forward to updating everyone next quarter.

We're just experiences how quick it's been down as well so there's still a lot of activity in that segment feel good about it.

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

In the near term, but maybe.

It may be slightly more uncertainty as we go out mid term.

Okay Fair enough. Thank you guys for taking my follow up.

Alright.

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

Thank you Gary as you've heard from Mike and me, we are pleased with our first quarter results and the momentum it provides through the balance of fiscal 2024.

Andrew our incredible employees, well done I am fortunate and proud to be a part of a group of talented individuals with power can do on full display and demonstrating a laser focus on the success of our customers.

With that thank you for joining us. This morning. We appreciate your continued interest in Powell and look forward to updating everyone next quarter.

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

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Yes.

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Q1 2024 Powell Industries Inc Earnings Call

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