Powell Industries, Inc.

Welcome to the PAL Industries Earnings 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 on your telephone keypad. 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. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman 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 2021 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. 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 15th. 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 8th, 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 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 with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Thanks, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2021 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. Our fourth quarter financial results reflected a strong finish to a fiscal year marked by industry challenges and inflationary cost pressures. Importantly, we saw sequential improvement in key growth drivers of the business, and we built upon our third fiscal quarter, which was an encouraging step in the right direction. All things considered, I am very pleased with the way we closed out fiscal 2021 and with the momentum we are carrying into the new fiscal year. In addition, we are seeing broad customer activity within our core industrial end markets slowly begin to recover from a period of significantly reduced activity following the start of the COVID-19 pandemic. We remain disciplined given the uncertainties that remain, but we are cautiously optimistic about our prospects going forward. In the fourth quarter, our revenue totaled $130 million, which reflects sequential growth of 12% and year-over-year growth of 13%. New orders of $121 million was higher by 17% sequentially and 61% higher than the $75 million of gross new orders in the prior year. Within our industrial markets, revenue from our petrochemical sector was up by 24% in the quarter, while oil and gas revenue was up by 29%. Our utility and traction markets continue to perform well, as they grew by 15% and 53%, respectively, compared to the fourth quarter of fiscal 2020. Each of these sectors have experienced strong growth over the last few years, particularly in Canada. Additionally, our aftermarket services team delivered a solid performance, helping to contribute to the strong fiscal fourth quarter. Our higher fourth quarter volumes allow us to achieve improved utilization rates, which, when coupled with continued strong execution, favorable project closeouts, and factory efficiencies, combine to help us achieve a gross margin of 17.4% in the quarter. That represents a sequential improvement of 260 basis points, but down from 18.9% in the prior year. The year-over-year decline is mainly the result of higher costs for raw materials, specifically steel and copper. We are also cognizant of the prospect for higher project costs in the coming quarters as we execute on projects booked during fiscal 2021. While encouraged by the recent price stabilization in many key commodities, we remain focused on being engaged with our suppliers and, where possible, passing through inflationary costs. Throughout fiscal 2021, we have and we will continue to remain diligent around our overhead cost structure and further protecting our margins to the extent possible. On a similar note, we are monitoring labor availability, which is causing upward pressure on wage costs across wide sectors of the economy. While labor inflation is not currently a significant problem for us, it may cause some margin pressure in the future as our project volumes increase and we increase our headcount accordingly. Moving to the bottom line, we reported a net profit of $3.3 million in the quarter compared to $3 million in the prior year and a strong improvement from a net loss of $2 million in the prior quarter. We ended the quarter with $134 million of cash and short-term investments and essentially no debt, slightly higher than the prior quarter, retaining our strong liquidity position. We feel we have sufficient liquidity to fund our working capital needs as our markets recover as well as evaluate inorganic opportunities for Powell. We ended the quarter with backlog tolling $415 million, which is roughly 3% lower than the third quarter, and compares to a backlog of $477 million at the end of the comparable period last year. We continue to see projects that had been previously placed on hold begin to show signs of life, along with requests to update pricing for several projects, mostly within our core oil, gas, and petrochemical markets. We view this as an additional positive step toward the longer-term recovery of our industrial end markets. Overall, while our financial results remain lower than pre-pandemic levels, We have been encouraged by the momentum we are seeing on a month-by-month basis. Our core end markets continue to see incrementally higher levels of activity, while our traction and utility markets have remained strong. Across the company, I am very pleased with the focus, attention, and overall solid execution across our operations as we remain committed to the success of our customers. Looking forward, we continue to believe the economics of natural gas will offer favorable opportunities in the LNG gas pipeline and gas to chemical process industries for the foreseeable future. In addition, as the world transitions to cleaner energy sources, we are participating in the development and planning of projects in the renewable markets of biofuels and biodiesel. These opportunities in renewable energy are smaller and more sporadic in nature, but offer new markets where Powell is uniquely positioned as a provider of custom engineered electrical products and solutions. We also expect to participate in initiatives around carbon capture and sequestration, as well as the production of hydrogen as a fuel source, although these are more nascent markets that we view as longer term opportunities. We are confident that our long history of innovation provides us with a unique advantage as we seek to pivot to these emerging markets that require new electrical equipment and solutions. As such, we remain committed to our R&D activities as the market commands changing needs for the distribution and control of electrical energy. We plan to evolve with that landscape by focusing our strategic initiatives around three core priorities. Our first priority is growing our electrical automation platform. We continue to build out our suite of digital asset management sensors to which we have made steady progress throughout fiscal 2021. Building upon our reputable history of electrical automation solutions, we have unveiled a suite of sensors to help our customers move to an event-based maintenance strategy. We believe that digital technologies like ours will continue to play a larger role in the future of electrical distribution, helping all of our customers achieve higher operating performance from their capital investments, extending the life of their equipment through predictive analytics and preventive maintenance, while also leveraging this technology to help achieve carbon reduction goals. The second of our strategic priorities is our focus on expanding our existing services franchise. Rather than building out a global services business that seeks to be all things to all people, we plan to focus our efforts around geographies where Powell has either an existing installed base with a leading market position or around select market sector opportunities where our services can provide differentiated expertise. Ultimately, we aim to move into the OPEC side of our customer spend through digital offerings that carry subscription-like models. Inorganic opportunities may also play a role here as we seek to bolster our market density where we feel there is a compelling opportunity or where we currently operate but have historically underserved. And finally, our third strategic priority is focused on the diversification of our product portfolio through both targeting tangential applications that complement our existing product offerings, as well as expanding the scope of our product catalog into new electrical technologies. These efforts should help to de-risk the business by penetrating cyclical markets that are counter to the traditional energy cycles. Similarly, We seek to grow in this area both organically through R&D as well as identifying inorganic opportunities that would be accretive to Powell. As we enter fiscal 2022, our priorities are unchanged. First and foremost is the health and safety of our employees, customers, and suppliers. Second, we remain focused on maintaining our solid execution performance, strong project closeouts, and factory efficiencies as we look to protect our margins in an inflationary cost environment. Next is a continuous evaluation of our current cost structure, supply chain, and resource planning to optimize operations across the geographies and markets that we serve. And finally, as we look over a longer-term horizon, we are committed to thoughtfully executing on our three strategic priorities. These initiatives are centered around growing our presence in markets such as electrical automation, where we can leverage a rich history of innovation, expanding our services franchise, by focusing on strategic and or geographic opportunities and diversification of our product portfolio to counter cyclical products and new markets. We look forward to providing updates around each of these strategic initiatives as the year progresses. With that, I'll turn the call over to Mike to provide more detail around our financial results before we take your questions.