Q4 2024 Powell Industries Inc Earnings Call
Welcome to the Powell Industries earnings Conference call.
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Speaker Change: And 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 Mr. Ryan Coleman Investor Relations. Please go ahead, Sir Thank you and good morning, everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year, 'twenty 'twenty, four fourth quarter and full year results with me.
Speaker Change: On the call are Brett Cope Powells, chairman and CEO and Mike Metcalf Powell's CFO.
Speaker Change: It will be a replay of today's call and it will be available via webcast by going to the company's website Paolo I N D dot com or a telephonic replay will be available until November 27th the information on how to access. The replay was provided in yesterdays earnings release.
Speaker Change: Please note that information reported on this call speaks only as of today November 20th 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.
Speaker Change: This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 investors are cautioned that such forward looking statements involve risks and uncertainties and that actual results may differ materially from those.
Speaker Change: 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.
Speaker Change: 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 <unk> fiscal 2020 for fourth quarter and full year results.
Brett: I'll make a few comments and then turn the call over to Mike for more financial commentary before we take your questions.
Brett: All delivered a strong fourth quarter performance that saw revenue grow 32% compared to the prior year, helping the company achieve a total of $1 billion in revenue for the full fiscal year, and marking a significant growth milestone and record year for the company.
We experienced tremendous growth in each of our key markets throughout fiscal 2024, with our top line growing by 45% compared to fiscal 2023.
Brett: Our oil and gas and petrochemical sectors grew 53% and 97% respectively, while revenues within the commercial and other industrial and electric utility sectors increased 44% and 18% respectively.
Brett: We booked $267 million of new orders in the quarter led by continuing strong activity within our utility sector and any notable booking supporting the capacity expansion of an LNG facility based along in the U S Gulf Coast.
Brett: We recorded more than $1 billion of new orders for the second consecutive fiscal year our.
Brett: Our core industrial markets have remained strong while we continue to make substantial progress to diversify and grow in markets such as utilities, datacenters hydrogen carbon capture and more.
Brett: Our project execution remains an area of strength for us as reflected by our gross margin.
Brett: Our fourth quarter margin of 29, 2% was aided slightly by some one time items, which Mike will discuss shortly but the underlying margin performance continues to improve.
Brett: For the full year, we recorded a gross margin of 27%.
Brett: Which was an improvement of 590 basis points compared to the prior year.
Brett: Yeah.
Brett: We continue to see improvement in the margin profile of sectors outside of our core industrial end markets as we become more efficient in our manufacturing and delivery processes for these projects.
Brett: On the bottom line, we reported net income of $46 million in the fourth quarter were $3 77 per diluted share, which was 74% higher than the prior year.
Brett: For the full year net income of $150 million translated to $12 29 per diluted share, which nearly tripled to $4 50 per diluted share we delivered in fiscal 2023.
Brett: Yeah.
Brett: Our backlog continues to hold steady at $1 3 billion, which was unchanged compared to both the prior quarter as well as the prior year.
Brett: We are pleased with the overall composition of our backlog as well as the timelines and margin profile of the projects that constitute our order book.
Brett: Our current project schedule provides good visibility as we have orders in our backlog, which we expect to realize revenue into our fiscal 2027.
Brett: We are making good progress with our capacity initiatives, which are advancing as planned to help facilitate the execution of our current backlog as well as provide room for modest volume growth going forward.
Brett: At the start of the fourth quarter, we acquired nine acres of property neighboring our Houston headquarters location.
Brett: We are already making use of this incremental space freeing up capacity to drive more throughput at our nearby manufacturing facility, which will contribute incremental revenue in fiscal 2025.
Brett: The expansion of our electrical products factory in Houston also remains on schedule and is expected to be completed in the middle of fiscal 2025.
Brett: This effort coincides with our initiative to develop and launch new products in support of our future growth across the customers and markets we serve.
Brett: On that point.
Brett: Our R&D spend in fiscal 2024 was up 52% as we advance our innovation initiatives to develop new technologies and broaden our product portfolio.
I am pleased to report a recent win in our product development process as last quarter, we launched our new station breaker, which is a medium voltage breaker, commonly used in the commercial and utility renewables market sectors.
Brett: We received our first order for this product in October and we've been very pleased thus far with this reception by our customers.
Brett: Our labor staffing levels are relatively unchanged and we remain comfortable with our ability to execute on the project schedules within our current backlog how.
However, as we evaluate the medium and long term trajectories of our markets and plan for volume growth identifying and acquiring qualified people throughout the organization remains a top priority.
Brett: As part of our efforts on this front we are in the final steps of opening an engineering satellite office. This office is located on the far west side of Houston, allowing us to better engage and higher from a wider population of qualified engineers.
Brett: This will enable us to continue to attract the talent to fuel each of our three strategic growth initiatives.
Brett: Looking forward, our expectations for project activity and new orders across our markets remain healthy.
Brett: <unk> nature of our quoting activity coupled with our recent win rate leaves us optimistic as we head into fiscal 2025.
Brett: The fundamentals for our oil and gas and petrochemical markets support our expectation for continued strength for these sectors.
Brett: In addition to the legacy work Paul does in these markets our oil and gas sector includes an energy transition projects, such as Biofuels carbon capture and hydrogen areas, where Pal has not historically participated but where we are seeing substantially higher volume of project activity.
Brett: Specific to the fundamentals fundamentals of the U S natural gas market price spreads across global markets remained favorable and conducive to U S export activity.
Brett: While recent activity has been more muted as a result of the U S Department of energy policy regarding LNG export permitting activity around future projects continues to be very strong and we believe that projects, which are currently on hold will come to market at some point and as such we have not altered our long term planning for this market.
Brett: Activity within our commercial and other industrial market also remains healthy and includes activity within the data center market.
Brett: We continue to evaluate evaluate ways to further penetrate the data center market and expand the total content opportunity with these customers, which requires that we qualify more of our products and services for the future of this important end market.
Brett: Lastly, the outlook for our utility market remains very strong.
Activity levels in this sector have clearly accelerated in recent quarters and our fourth quarter was the second consecutive quarter, where new order totals were led by the utility sector.
Brett: It is becoming increasingly clear that the reliable supply of electrical energy must grow significantly over the next several years to meet rising demand.
Mike: How has the right industry breadth technical knowledge talent and strategy to leverage our more than 75 years of expertise in these markets to deliver for all of our stakeholders with that I'd like to turn the call over to Mike to walk us through our financial results in more detail.
Mike: Thank you Brett and good morning, everyone.
Mike: I'll first begin with the fiscal fourth quarter business results and then move to the total fiscal year 2024 results.
Mike: Revenues for the fourth fiscal quarter of 2024 increased by 32% to $275 million compared to the same quarter in fiscal 2023 of $209 million.
And was lower sequentially by $13 million, primarily due to the project timing within the electric utility sector.
Mike: Net orders for the fourth fiscal quarter were $267 million $96 million higher than the same period, one year ago, driven by a strong year over year increase in our petrochemical oil and gas and electric utility sectors.
Mike: Notably during the quarter, we secured a large oil and gas order for an LNG facility expansion on the Gulf Coast.
Mike: Overall, we remain encouraged with the commercial activity across our core industrial and electric utility markets.
Mike: Thanks to another strong quarter of new order bookings and the sustained strength of our topline performance. The book to Bill ratio was 1.0 times for both the fourth quarter and the full year of fiscal 2024.
Mike: Reported backlog at the end of fiscal 2024 remained at $1 $3.041 billion higher than the end of fiscal 2023, and a favorable mix of electric utility and commercial and other industrial backlog, partially offset by lower petrochemical and oil and gas back.
Mike: Log levels versus the prior year.
Mike: In general we are very pleased with both the execution across the business driving record revenue levels for the year as well as our orders performance sustaining our backlog position as we enter into fiscal 2025.
Compared to the fourth quarter of fiscal 2023 domestic revenues of $226 million increased by $56 million or 33%, while international revenues increased by 28% to $49 million and higher volume across most of our international manufacturing.
Mike: And service locations.
Mike: From a market sector perspective revenues from our petrochemical sector grew by 112% driven primarily by the large petrochemical order booked in mid fiscal 2023, while our oil and gas sector was higher by 23% driven by strong revenues generated from our traditional oil and gas and mark.
Mike: Kits, along with sustained LNG revenues.
Mike: In the fourth quarter of fiscal 2020 for the electric utility sector was lower by 5% primarily as a function of project timing, while the commercial and other industrial sector was higher by 66% and continued momentum in the datacenter space and.
Mike: And finally, the light rail traction power sector increased by 19% on a small revenue base as we continue to selectively target pursuits in this market.
Mike: We reported $80 million of gross profit in the fiscal fourth quarter of 2024, which was $28 million or 55% higher than the same period of fiscal 2023.
Gross profit as a percentage of revenues increased by 430 basis points to 29, 2% of revenues in the fourth fiscal quarter.
Mike: The higher quarterly margin rate is in large part attributable to the strong project execution across the business, resulting in favorable project Closeouts. In addition to the volume leverage and associated productivity across all of our manufacturing operations, which is helping to drive these incremental margin gains.
Mike: Although negligible the current quarter margin rate also benefited from three order cancellations, which generated $2 $2 million of gross profit or an incremental 60 basis points to the margin rate in the quarter.
Selling general and administrative expenses increased by $1 $1 million or 6% due to higher levels of infrastructure infrastructure spending.
Mike: SG&A expenses were $21 $6 million in the fiscal fourth quarter or seven 8% of revenue compared to nine 8% of revenues a year ago and a higher revenue base.
Mike: These results demonstrate our continued focus on thoughtfully managing overhead while also addressing the critical resource requirements necessary to execute on the order book.
Mike: In the fourth quarter of fiscal 2024, we reported net income of $46 $1 million generating $3 77 per diluted share compared to net income of $26 4 million or $2 17 per diluted share in the fourth quarter of fiscal <unk>.
Mike: <unk> thousand 23.
We used $6 million of operating cash flow in the fiscal fourth quarter due to a buildup in our working capital as we continue to execute on the project backlog.
Mike: Capex spending during the quarter was $8 $5 million with the majority of the spend attributable to both the purchase of the new property neighboring our largest Houston facility, which consumed $5 6 million as well as the facility expansion at our products factory in Houston consuming the first $1 5 million.
Mike: Of a projected 11 million total spend.
Mike: Yeah.
Mike: Now recapping, our total year fiscal 2024.
Revenues of $1 billion increased by $313 million or 45% compared to fiscal 2023.
Mike: Orders were $1 1 billion, 24% or 340 million lower versus fiscal 2023 as fiscal 2024 contains a mix of very healthy medium to large projects. However, no repeat mega projects as were booked in fiscal 2023.
Mike: Overall, we've been very pleased with the orders mix and cadence throughout fiscal 2024.
Gross profit as a percentage of revenues grew 590 basis points year over year to 27% or $126 million higher than fiscal 2023.
The margin rate continues to benefit from efficient project execution optimal volume leverage and successful operational and commercial strategies that helped to offset the ongoing inflationary headwinds and supply chain challenges.
Mike: Selling general and administrative expenses were higher by $6 million versus the prior year.
Mike: Overall net SG&A expenses as a percentage of revenues were lower versus the prior year by 290 basis points at eight 4% of revenues in fiscal 2024 versus 11, 3% in the prior year.
Mike: In fiscal.
Mike: 2020 for research and development spending increased $3 million or 52% versus the prior fiscal year as we continue to make good progress in new product design and development. In addition to advancing our current product offerings R&D spending in fiscal 2024 was $9 $4 million or <unk>.
<unk>, 9% of revenues.
Mike: We reported net income of $149 $8 million or $12 29 per diluted share in fiscal 2024, compared to $54 5 million or $4 50 per diluted share in the prior year.
Mike: Operating cash flow generated in fiscal 2024 was $109 million versus $183 million in the prior year.
Mike: The reduction was driven by cash used for the execution of our existing backlog in the current fiscal year versus the advanced payments received in the prior fiscal year, when large petrochemical and LNG projects were booked into the backlog in fiscal 2023.
Mike: Total capital spending was $12 million in fiscal 2024 4 million higher than the prior year attributable attributable in large part to the purchase of the new property neighboring our largest facility in Houston.
Mike: At the end of fiscal 2024, we had cash cash equivalents and short term investments of $358 million $79 million higher than our fiscal 2023 year end position, reflecting the sustained level of commercial activity across our end markets as well as the healthy focus on work.
Mike: <unk> capital management.
Mike: The company holds zero debt.
Mike: As we look ahead to fiscal 2025, we expect continued strength across most of our end markets spanning across all of the geographies that we compete in.
We're pleased with our fiscal 2024 results and remain focused and carrying forward the strong operational execution and commercial momentum that we've experienced this year into fiscal 2025.
Mike: With this healthy backdrop robust backlog strong liquidity and a solid balance sheet.
Mike: We anticipate that fiscal 2025 will be another successful year for Powell.
Speaker Change: At this point, we'll be happy to answer your questions.
Speaker Change: Thank you we will now begin the question and answer session.
Speaker Change: To ask a question you May press Star then one on your telephone keypad.
Speaker Change: If you're using a speakerphone please pick up your handset before pressing the keys.
Speaker Change: If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Speaker Change: And your first question will come from John spreads Rabb with Sidoti <unk> Company. Please go ahead.
Speaker Change: Good morning, Mike and congratulations on another great quarter.
Mike: Thanks, Hi, good morning.
Speaker Change: I'd like to start by revisiting the question I asked in the previous quarter.
Speaker Change: First on how did the closeouts impact gross margin on the quarter.
Speaker Change: Yeah, Hi, John This is Mike Yeah, we were very pleased with where we landed margins for for both year to date at 27% in the discrete <unk> at 2092.
Speaker Change: That said as you as you know project based business, we do anticipate choppiness across that.
Speaker Change: Quarterly landscape and similar to three Q.
Speaker Change: We did experience approximately 150 to 200 basis points of uplift in our margins due to project Closeouts as some of the larger projects make their way through the system.
Speaker Change: In addition to that we also recognized roughly 60 bps of upside due to three project cancellations due to customer schedule changes.
Speaker Change: So that that really was the.
Speaker Change: The anomalies for the quarter from a margin standpoint, once you normalize for that you're roughly aligned with where we exited the year on a trailing 12 month basis, 27%.
Understood Mike.
Speaker Change: It seems odd for me I can't recall, a cancellation of any kind of magnitude in quite some time much less screen is anything unusual happening out there we should be cognizant of that.
Speaker Change: No. It was nothing unusual in fact, it was geographically dispersed.
Speaker Change: In the U S and one at our UK facility and really given the capacity constraints that the industry is seeing if the schedule has changed from a customer it really creates a <unk>.
Speaker Change: Creates a pinch point in NAFTA NAFTA reset so that's what that was all about.
Speaker Change: Okay, and again revisiting a question from the previous quarter.
Jobs being written at higher profit margins than the past.
Speaker Change: Hey, John threat no.
Speaker Change: As our conversations flowed this fiscal year.
No no significant change in price, we continue to watch it on either side certainly looking for.
Speaker Change: <unk> to sell the value we offer.
Speaker Change: But also looking for any changes in the market.
Speaker Change: It's kind of held the outerwear, it's been all year.
Speaker Change: Okay, and just on the capacity expansion.
Speaker Change:
Speaker Change: Any way, we can quantify how much additional revenue opportunity expansions will bring the firm.
Speaker Change: Well the last the two that are ongoing they are different there's different strategies around both the expansion of the airport factory is to build a more products central non non cyclic side of our of our business. So that zero 38 product expansion that we're invest.
Speaker Change: Thing organically and the R&D side the station breaker that I noted in prepared comments.
Speaker Change: Is it going to go into that space and we have some initial targets we've set for the fiscal 'twenty five.
Speaker Change: We certainly anticipate or hope to exceed those as the years go on it looks like it looks pretty good in terms of the market feedback where the team has developed a product outfitting and so I'm I'm excited for the potential the Hansen facility.
Speaker Change: You know its near term.
Speaker Change: Goals will be to.
Speaker Change: Sort of Declutter, the existing operation that half a million square feet, we have over here near the headquarters to to give us better line of sight on.
Speaker Change: The productive capacity of this facility, but we do anticipate over there.
Speaker Change: As we as we put more and more.
Speaker Change: Production, where there that would be in the $20 million to $40 million range over the next year or two.
Speaker Change: Fair enough.
I'm going to actually get back into queue give somebody else a shot thanks Brett.
Speaker Change: Again, if you have a question. Please press Star then one our next question will come from Jon Braatz with Kansas City Capital. Please go ahead good.
Jon Braatz: Morning, Brett Good morning, Mike.
John Rabb: Good morning, John.
John Rabb: Brett on the LNG pause.
Speaker Change: I assume the pause will earn January 26, or 27, something like that.
Speaker Change: And my question would be how quickly.
Things start things begin to move forward and in that in that sector and.
Speaker Change: And how quickly can you know after the pause some of these projects reach a final investment decision in and.
Speaker Change: Project Awards.
Speaker Change: Ah Ah projects.
Speaker Change: Projects are going to be awarded.
Yes.
John I can tell you on the timing part.
Speaker Change: That question is being.
Speaker Change: Studied by us everyday.
Speaker Change: I can tell you that from an activity standpoint, it definitely has picked up.
A couple of quarters ago, we always see the early.
Speaker Change: Bill to the cost structure.
Speaker Change: The cost outs, all that effort that we put into these these large projects with our partners and the end client.
Speaker Change: Activity has definitely ramped up the timing element definitely.
As I noted and as you are looking for is a question were all in search of but I would say the momentum.
Speaker Change: Is building very positively as we look into 'twenty, five and 26 and 27 I think at this point so there's there's definitely.
Speaker Change: Definitely a crescendo at work being.
Potential out there.
Speaker Change: Brett.
Speaker Change: Am I understanding correctly that and I assume I am that you are actually working on some of these projects already and yeah.
Speaker Change: It's just a matter of timing correct. There are bolt out there John there are a a.
Speaker Change: A fair amount of expansions with this past quarter was an expansion on a project that we've been on for a couple of years.
Speaker Change: Nice subsequent award with our partners on that one and we're very appreciative of the award.
Speaker Change: But there are new projects out there to just complete new Greenfields like you see out there with new money coming into this space over the last decade, there are some very ambitious projects.
Speaker Change: Debt.
They get over the line with permitting and the funding piece.
Speaker Change: It's going to be just that.
Speaker Change: That much more.
Mike: Two to look at it for the industry Okay Mike.
Speaker Change: Mike.
Speaker Change: How would you look at the in the fourth quarter of sort of the book and burn business Oh.
Speaker Change: I know you sort of talk about maybe $35 million a quarter, but it is.
Has that changed at all.
Speaker Change: And then given all the productivity initiatives that the business has embarked upon over the last 18 to 24 months that we are seeing that tick up the throughput is up.
It's now in the 40% to $50 million range. Okay. So.
Speaker Change: So and that's really tied to all the investment we've made plus all of the the project.
Speaker Change: Productivity projects that have taken place.
Speaker Change: Can that get even better.
Speaker Change: We're pretty happy with where it is now.
Speaker Change: 32 to up to 50, so we're always trying.
Speaker Change: That's correct.
Speaker Change: Okay and Brett.
Speaker Change: One sort of a big picture question, when you think about the business going forward.
Speaker Change: And where you stand today are you more optimistic about the duration of the cycle as opposed to necessarily.
Speaker Change: The the incremental annual gains that you might see volume gains is it more of a duration that oh the cycle that gets you more.
Speaker Change: I'm excited about the years ahead.
John Rabb: I would agree John I think as this thing came on post pandemic 'twenty two to 'twenty three the breadth of it was initially okay, where do you focus on how do you keep the team aligned to the three strategies. We blind out are always reexamining, our strategy should we add to our altar and so definitely the duration I become.
John Rabb: Maybe a bigger believer in the duration of this thing Mike and I talk a lot about it and it definitely has I would say today sitting here.
John Rabb: <unk> for longer in the market and and it really I feel today on our strategies were the clarity because of the duration is providing really good direction to our three strategies as we've kind of hit the year running here and I feel I feel good about where we're going on those as well.
Brett Mike: Okay. Thank you. Thank you Brett Mike Yes.
Speaker Change: The next question is a follow up from John <unk> with Sidoti <unk> Company. Please go ahead.
Thanks for taking the follow ups I guess I wanted to start with the fourth quarter.
Speaker Change: How much was data center as a percent of fourth quarter sales.
I'm going to say, it's in the low double digits, John 10 ish percent of the total sales.
Speaker Change: And how do you anticipate that progression as the year goes forward.
Speaker Change: Looking at the activity in the funnel it's it's.
Speaker Change: As strong if not potential for some upside I think as we look into at least in the first two three quarters, a backup again timing of getting those jobs over and Theyre getting bigger in terms of total power consumption.
Speaker Change: But we're seeing that trend.
Speaker Change: One of our products is 38 kv, we see we see an increase in rfps coming into that product. So that just that validates that the power size power size of these things are getting bigger.
Speaker Change: But that also increases the total spend and certainly on their side similar to other large projects.
Speaker Change: Our equivalent words on their part to fund the projects and ensure the return but there.
Speaker Change: The activities.
Speaker Change: Shelby.
Speaker Change: So Brett are you seeing a meaningful change in the composition of your backlog at the end of the fiscal year than maybe any sore too.
Speaker Change: Two years ago.
Speaker Change:
Speaker Change: But I'd point more to the utility piece.
Speaker Change: As evidence of that that's an intentional strategy over the better part of 10 to 12 years now John the which is both a mix of infrastructure investment by the utility and their strategies, but also to meet the second secondary demand thats being brought on by Datacenters and onshoring.
Speaker Change: Of new factories, and so that second effect.
Is changing the conversation between Paul and our utility clients.
Speaker Change: Into a longer term relationship, which which is healthy because it allows both groups to work together.
Speaker Change: Not only on the immediate near term projects, but then to develop approaches that can help optimize the cost.
Speaker Change: <unk>.
Speaker Change: Them and.
Speaker Change: And their build out needs. So we're seeing the utility piece really change that complexion on the backlog, yes. There has been some affect near term on the commercial industrial sector.
It's been it's been low single digits, but the utility piece is quickly approaching a double digit change in our in our profile as we've grown the overall size of the backlog and the revenue uplift per quarter.
Speaker Change: Sure.
Speaker Change: Got it got it.
Speaker Change: And I guess just on the cash.
Speaker Change: Let's talk at one time about potential M&A.
Speaker Change: Okay. She is getting rather sizable.
Speaker Change: What are your thoughts of what to do with the cash priorities for it.
Speaker Change: Yes, we haven't I don't recall last quarter, but the M&A activity is.
Speaker Change: The funnel the work we've been doing I think over the over the last couple of years, we've indicated sort of the ramp up in the funnel and working with the board.
Speaker Change: We're very active.
Speaker Change: In the space and nothing immediate but.
Speaker Change: Given given.
Speaker Change: Some of the questions. This morning about the breadth and duration of this thing it's sort of crystallized.
Speaker Change: Where we are having strategic discussions and.
Speaker Change: And we are definitely seeing some clear opportunities more in the mid term now so much long term.
Speaker Change: Okay, Thanks, and congratulations again.
John Rabb: John Thanks.
Speaker Change: And this will conclude our question and answer session I would like to turn the conference back over to Mr. Brett Cope.
Speaker Change: Oh for any closing remarks.
Brett Cope: Thank you Chuck as you've heard from Mike and I. We are very pleased with the financial performance that the Pall team delivered this past year. The markets. We serve continue to support our belief that fiscal 2025 will be another strong year for Paul.
Brett Cope: I would like to thank our incredibly talented employees for their hard efforts focus and continued commitment to our valued customers as we continue to elevate our performance and work to meet our future goals for the company.
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 with you all next quarter.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].