Powell Industries, Inc.

Welcome to the PAL 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. To ask a question, you may press star, then one on your touchtone phone. To withdraw from the question queue, please press star, then two. Please note this event is being recorded. I'd like to turn the conference over to Ryan Coleman, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us for Powell Industries' conference call today to review fiscal year 2023 second 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 available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until May 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, May 3, 2023, 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. Good morning. Thank you for joining us today to review Powell's fiscal 2023 second 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. I am very pleased to share that Powell delivered second quarter results that were among the best in our history. as the continued execution against our strategic initiatives combined with the cyclical recovery of our core markets are driving improved margins and increased earnings, along with achieving another record backlog. The momentum that started to build over the past few quarters in our industrial markets accelerated in the second quarter. Two significant awards underscored the strength of our bookings during the quarter, including an award for another large domestic LNG project which marks three consecutive quarters of significant activity in this market sector. We were also fortunate to have received a new award for a greenfield petrochemical project during the quarter. This megaproject is for a gas-to-chemical facility that will be located in the U.S. domestic market. While the strength of new orders was certainly driven by strong demand from our core oil and gas and petrochemical end markets, the majority of the sectors and geographies that we compete remain very active. Notably, in addition to the commercial activity across our core industrial end markets, we also experienced continuing strength in booking activity across our utility and commercial and other industrial sectors during the quarter. Total revenue in the second quarter was $171 million, which is 34% higher than the second quarter of fiscal 2022. By market sector versus the same period in the prior year, revenue in our oil and gas sector increased by 17%, Petrochemical revenue increased by 37%, while the utility sector saw revenue jump 40%, and the newer commercial and other industrial sectors saw revenue of $22 million, which is nearly four times higher versus the prior year. This was partially offset by the traction sector, which declined by 27% compared to the second quarter of fiscal 2022, mainly the function of wrapping up a large municipal project in Canada. Order activity in the second fiscal quarter was exceptionally strong as we secured $508 million in new bookings. That figure is more than three times higher than the same period in the prior year and more than double the $212 million that we saw in the first quarter of fiscal 2023, which until this quarter was our best quarter of bookings Pollitt has had since Q1 of fiscal 2013. Our book-to-bill ratio in the current quarter of three times was equally strong and was the sixth straight quarter with a book-to-bill over one. Our teams delivered a gross margin in the quarter of 19.5%, which is an increase of 460 basis points compared to the same period last year. Strong project execution, volume leverage, and positive closeouts helped to deliver the underlying margin growth. Moving to the bottom line, we reported net income of $8.5 million in the second fiscal quarter of 2023, or $0.70 per diluted share compared to a net loss of $1.2 million, or a loss of $0.10 per diluted share in the prior year. Lastly, we ended the quarter with an order backlog of just over $1 billion, an increase of nearly 50% from the end of the first quarter of 2023, and more than double the $440 million at the same time last year. The growth is driven by improved strength across our core oil, gas, and petrochemical market sectors, and it is the first time in Powell's history that our backlog has exceeded $1 billion. That said, we are very comfortable with the size, mix, and quality of our order book. Our project backlog is well balanced across our seven manufacturing facilities, and project schedules extend through fiscal 2024 and into fiscal 2025 providing us with a steady, balanced cadence of future activity. The nature and scope of these projects are also core to what Powell does best in markets where we excel. Our 75-year history of success and leadership in the industry has earned us our current position in this cycle and leaves us very comfortable with our ability to fulfill our backlog with the same level of service and execution that has earned us our reputation. We have taken every dollar of our backlog thoughtfully and on schedules that we are confident that we can achieve. Turning to our operational performance, I am very proud of the progress our teams are making across all of our facilities as we rise to meet the increase in market demand. How employees are measuring and working to improve productivity, minimizing or eliminating inefficiencies, and addressing headwinds quickly and as a team to ensure that we leverage our processes, plants, and facilities optimally and in the best interest of our customers and our stakeholders, but without ever sacrificing the quality of our products, systems, and solutions synonymous with the Powell brand. The investments that we have made in the tools, processes, and our people over the last six-plus years has prepared the business to meet this increased workload. Our operational teams throughout the company are constantly working to share best practices and refine our approach to the most complex of engineered-to-order electrical substations. Their sustained efforts have increased our revenue productivity to historical highs. Further, throughout fiscal 2023, our teams continue to identify a number of incremental capital improvement projects that will facilitate both incremental capacity as well as improved production efficiency in several of our facilities. Additionally, our operational teams continue working to mitigate the effects of the inflationary cost environment and availability challenges. Key engineered components continue to create longer lead times. However, we are managing through these challenges, and where possible, factor contingencies and allowances for these components in our bidding activity. Meanwhile, prices for key commodities, such as steel and copper, have stabilized versus prior periods, however, remain subject to macroeconomic volatility. Our teams work hard to ensure that these inputs do not create significant cost overruns on current and future project activity. Further to this point, our commercial teams continue to ensure that pricing initiatives are aligned to the current cost environment when and where possible in order to protect our margins, which together is evidenced by our strong second quarter margin performance. The labor markets, while not presenting significant issues presently, will remain an area for our teams to exercise diligence as we plan for the next several years. Over the last few quarters, we've shared that we are currently comfortable with staffing levels as we work to support the growth and execution of our backlog. But we are attentive to our current capacity levels as that backlog continues to grow. Our human resources teams have been working extremely hard to remain closely aligned with our operational teams to forecast and plan for the future. Voting activity remains robust across most market sectors. We continue to see favorable opportunities within LNG, gas pipeline, and the gas to chemical sector. We are also active in the renewable markets of hydrogen, biodiesel, and related biofuels, such as sustainable aviation fuel, as well as carbon capture and sequestration. Additionally, we continue to take incremental steps to further improve our market channels in order to capitalize on our growth in the market adjacencies within our commercial and other industrial sector. We remain acutely focused on executing against each of our strategic initiatives in fiscal 2023, which include growing our electrical automation platform, expanding our existing services franchise, and diversifying 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. While we are very pleased with our fiscal second quarter and year-to-date first half financial performance, as well as our positioning for the second half of fiscal 2023, we are cognizant of the fact that this is the nature of the cyclical markets in which we operate. Powell has been through more than its share of cycles over its 75-year history, but we have maintained and fortified our position as an industry leader and trusted partner to our customers because of our focused execution and diligent planning process through good years and lean years. We are confident that this culture, coupled with the positive transformational steps being taken internally at the company, will drive another strong year of improved financial performance for Powell. With that, I'll turn the call over to Mike to provide more detail around our financial results.