Powell Industries, Inc.

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 questions. Please note this event is being recorded. 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 2021 first quarter results. With me on the call are Brett Cote, Powell's chairman and CEO, and Mike Metcalf, Powell'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 February 10th. 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, February 3rd, 2021, 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 results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include but are not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international, political, and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2021 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. In many respects, not much has changed over the past 60 days or so. since we shared our 2020 full-year results. However, Powell's order activity showed a modest improvement with a sequential increase in net new orders, which totaled $91 million for the quarter. The onset of the COVID-19 pandemic, which began a little less than a year ago, had an immediate impact on the short-term business outlook for portions of our customer base, and this continues to affect confidence levels in our customers' capital investment plans. Our core industrial markets in the oil and gas, petrochemical sectors remain under pressure. Many projects have had their schedules pushed to the right. However, we continue to see sustained demand in other sectors we serve compared to last year. While the mixed shift remains a headwind, the higher utility and traction activity, coupled with a steady flow of engineering-only work we are seeing, enables us to leverage our overhead while working our existing backlog until the broader markets recover. First quarter revenues totaled $107 million, down 20% when compared to the prior year, and lower by roughly 7% sequentially. The decline was driven by lower revenue from both our oil and gas petrochemical customers, which were down 33% and 70% respectively, compared to the first quarter of fiscal 2020. Those declines were partially offset by the sustained demand we are seeing in our utility and traction markets which grew by 22% and 60% compared to the first quarter of last year. As a reminder, our first quarter results typically experience seasonality from a revenue and new bookings perspective. First quarter gross margin as a percentage of revenue was 17.1%, which is an increase of 80 basis points compared to one year ago. The year-over-year increase resulted from restructuring activities that we took in May of fiscal 2020, as well as continued strong productivity in our domestic operations. We continue to prudently manage travel and other discretionary expenses in this environment. We are also closely monitoring dynamic regulatory changes in geographies that we serve, regularly evaluating our cost structure to ensure we are aligned with the current environment. With that said, we are a long cycle business and it is essential that we retain the know-how to remain properly staffed for the eventual recovery of our major end markets. At the bottom line, we were slightly below break-even as we reported a net loss of $364,000 in the quarter compared to net income of $2.8 million in the prior year, primarily due to lower operating earnings resulting from a decline in revenues and gross profit amidst lower new orders and adverse market conditions. We ended the first quarter with backlog totaling $465 million, slightly lower than the $477 million at the end of the fourth quarter, but solidly above the $426 million in backlog at the end of the first quarter in the prior year. The year-over-year increase includes the previously announced large industrial order that was booked in the second quarter of fiscal 2020 to support the design, manufacture, integration, and testing of a Powell Custom Integrated Electrical Distribution Solution. As previously reported, this project will convert to revenue over the total of a three-year horizon. We also ended the first quarter with $150 million of cash in short-term investments and essentially zero debt, which speaks to our strong liquidity position as well as the optionality afforded to the company. Visibility remains challenged for many of our customers as they grapple with the currently weakened state of both cyclical and secular growth drivers for their businesses, and we continue to work in close concert with them to respond accordingly. Powell's platform is a full electrical solutions provider with extensive technological expertise, and an exemplary track record of execution makes us a trusted partner during these periods of the cycle, and I believe we are benefiting from that earned reputation. Looking forward, we believe the economics of low-cost abundant natural gas will continue to provide favorable opportunities in the LNG, gas pipeline, and gas chemical process industries. We are also seeing developing opportunities in the renewable markets of hydrogen, biofuels, biodiesel, as well as carbon capture and sequestration. We are also closely monitoring the possibility of tightened environmental regulations that may require a lower level of sulfur attributable to the emissions of transportation fuels. Our strategic focus on improving operational excellence over the last few years positions Powell to quickly help our refining customers respond quickly and safely to upgrade facilities in order to meet improved emissions requirements. Before I turn the call over to Mike, I'd like to reiterate our key focus areas for fiscal 2021. First and foremost is the health and safety of our employees, customers, and suppliers. We are also focused on maintaining our solid execution performance to ensure that we continue to meet the high expectations stakeholders have of Powell. Next is the continuous evaluation of our current cost structure, supply chain, and resource planning to optimize operations across the geographies and markets that we serve. And last, It is also critical that we continue to lay the foundation for future growth opportunities while also broadening the markets for power. Our human capital, balance sheet strength, and technological expertise allow us to be proactive in the current environment. With that, I'll turn the call over to Mike to provide more detail around our financial results before we take your questions. Thank you, Brett, and good morning, everyone. In the first quarter of fiscal 2021, reduction versus the same period in the prior year. Bookings for the first fiscal quarter were $91 million, $46 million lower versus the prior year. As a result, our book-to-bill ratio was 0.9 with $465 million of backlog at the end of the first fiscal quarter, which was $39 million higher as compared to the same period a year ago. Compared to one year ago, domestic revenue decreased by $26 million, or 25%, to $80 million. And international revenue fell 4% year-over-year to $27 million. These declines reflect the continued softness across our core industrial end markets. From a market sector perspective, revenues across our oil and gas and petrochemical sectors were lower by 46% versus the prior year. While the utility sector was higher by 22 percent, and traction volume experienced a 60 percent increase versus the first fiscal quarter of 2020. Compared to the first quarter of fiscal 2020, gross profit decreased by $4 million to $18 million on the lower revenue. However, as a percentage of revenue, gross profit increased by 80 basis points to 17.1 percent versus the same period one year ago on favorable project closeouts and settlements, as well as overall continued focus on productivity and cost management. Selling, general, and administrative expenses were $17 million in the current quarter, flat versus the same period a year ago. SG&A as a percent of revenue increased to 16% in the current quarter on the lower revenue. In the first quarter of fiscal 2021, we reported a net loss of $364,000 or a loss of 3 cents per diluted share compared to net income of $2.8 million or 24 cents per diluted share in the first quarter of fiscal 2020. During the first quarter of fiscal 2021, net cash used in operating activities was $25 million. driven by annual variable incentive compensation, as well as a buildup of working capital for the projects that are currently in the manufacturing stages of production. Investments in property, plant, and equipment totaled $1 million. At December 31, 2020, we had cash and short-term investments of $150 million compared to $179 million at September 30, 2020. Long-term debt, including current maturities, was $400,000. As we look forward to the remainder of fiscal 2021, we anticipate continued commercial headwinds driven by the ongoing uncertainty across our industrial and market and the overall pace of recovery. Considering the long-cycle nature of our business, as well as the associated softness across our industrial and markets, we do foresee a more challenging fiscal 2021 versus the prior year. We are, however, anticipating that based upon our solid backlog and increasing orders cadence that we are well positioned to improve our financial performance as we progress through the balance of fiscal 2021. With that in mind, our fundamentals are solid. We're maintaining our cash and cost vigilance while ensuring that we execute on our backlog. Our strategy of maintaining minimal debt and ample liquidity is essential during this down cycle. And it also provides an element of optionality as we continue to focus on opportunities to grow the business and diversify our revenue and mix going forward. At this point, we'll be happy to answer your questions.