Powell Industries, Inc.

Good day and welcome to the Powell Industries Fiscal Second Quarter 2024 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. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would like now to turn the conference over to Mr. Ryan Coleman with 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 second quarter results. With me on the call are Brett Koch, 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 8th. The information on how to access the replay was provided in yesterday's earnings release. Please note that this information reported on this call speaks only as of today, May 1st, 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 meeting 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 turn the call over to Brad.

Thank you, Brian, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2024 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. Powell's second quarter financial results showed strong year-over-year growth supported by continued strength and healthy levels of project activity from our core industrial end markets and complemented by impressive performances from both the utility and the commercial and other industrial sectors. New orders in the quarter totaled $235 million, reflecting another strong quarter of bookings and in line with our expectations of a normalized but still elevated cadence of awards. Notably, there were no mega projects included in our second quarter bookings. Rather, the $235 million of orders is comprised of a strong volume of small and medium sized awards that speak to our core competencies and well balanced across our markets. Our revenue in the quarter grew 49% to $255 million, driven mainly by strong performance from our largest markets, oil and gas and petrochemical, which grew 66% and 93% respectively compared to the same period of fiscal 2023. As our operations have ramped to meet the demand of higher overall project volumes, we remain focused on project execution and operational efficiencies. Many of the initiatives and process improvements put into place during the lean quarters of the pandemic continue to work well, as we are benefiting today from improved and more efficient manufacturing operational processes. These streamlined operations also help to create additional capacity while also delivering attractive returns for our stakeholders. Our gross profit was very strong in the quarter, growing 88% versus the same period in the prior year, leading to a gross profit of 24.6% of revenue, or 510 basis points better than the prior year. We are also benefiting from the quality of our backlog, as it carries a more favorable margin profile than that of recent years. This is mainly driven by a higher share of industrial projects where Powell's core expertise and competencies lie, and conversely, a more selective share of work which tends to carry a lower margin profile due to either the nature of how this type of work is awarded or content less favorable to our strength of handling complex, heavier engineering requirements. While we are, of course, always conscientious of how we utilize our resources to pursue and quote projects, Powell's focus on custom engineer-to-order solutions for complex projects means that we rarely aspire to win projects on price. Rather, the value we provide is our industry-leading track record for both our product technology and our project expertise, and that we deliver for our customers on every project. The strength of our engineering teams is equally important as it enables us to be closer to the customer throughout the project lifecycle, allowing us to adapt quickly as project requirements, scope, and timing change, while fostering healthy, long-term customer relationships. On the bottom line, we recorded net income of $33.5 million, or $2.75 per diluted share, which was roughly four times higher than the $8.5 million, or $0.70 per diluted share, in the year-ago period. Our backlog remains near the highest in Powell's and was roughly flat sequentially at $1.3 billion. Regarding our capacity initiatives, the expansion of our Houston facility on the Gulf Coast is complete, and that expansion is providing us with incremental fabrication and integration support for large power control rooms, especially for projects that support delivery and transport by water access. In addition, the expansion of our electrical products factory in Houston is progressing as planned, This $11 million expansion is expected to be completed in the middle of fiscal 2025 and coincides with our initiative to release new products in support of our future growth across the customers and markets we serve. 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 backlog. However, as we look out over a multi-year period and evaluate the markets we serve, finding talented engineers to help us increase our throughput will remain a critical area of focus for us. Our HR team continues to do a terrific job finding great people to join the Powell team, as well as developing creative staffing plans to improve efficiency and help us service a backlog that has tripled in just two years. Looking forward, our expectations for project activity and new orders are relatively unchanged. Overall, quoting activity remains very healthy and balanced. Within the oil and gas LNG market, Fundamentals of the U.S. natural gas market remain favorable and support many global economic and environmental goals over a long-term horizon. Natural gas price spreads across global markets remain conducive to U.S. export activity. That said, it is our assessment that the comments earlier this year from the U.S. Department of Energy regarding U.S. LNG export permitting have had a slight dampening effect on new projects coming to market for bids. These projects are likely being pushed out to the right and have not yet impacted Powell's long-term planning for this market. The fundamentals for our oil and gas and petrochemical markets continue to underwrite our expectation for continued strength for these sectors, which also includes energy transition projects such as biofuels, carbon capture, and hydrogen. Activity within our commercial and other industrial market also remains attractive. Revenue in this segment grew 57% this quarter. Over the past several quarters, the growth in this sector has been driven by our growing presence in the data center market and has mostly been driven by a limited amount of the total value that we can offer. We believe that the strong growth that we have seen so far in this fast-growing market for Powell has a larger potential as we continue to qualify more of our products and services for the future of this important end market. we have primarily served the outside connection of the data center to the grid and see the potential for further penetration within the four walls of the data center where Powell can provide increased value. In addition, sales to data center customers have generally been smaller in scale and focused on individual products. However, as data centers grow in both physical size and computing power, the electrical energy demanded by these facilities will only grow in scale. As a result, The power solutions required by data centers will also grow in sophistication and require companies like Powell to build customized and fully integrated solutions within a single power control room to ensure the reliability and uptime performance of the servers to store and secure the data. We are prepared for this future and are building relationships with both hyperscalers as well as co-locators to better understand the power demands of these facilities to deliver Powell's engineer-to-order solutions for these customers. Lastly, the outlook for our utility market is among the most positive in recent years. Powell has grown to become a leading provider of utility distribution substations. These types of projects remain core to our results in this market, but recently we have seen the return of new generation work. Helped by the increasing electrical power demands, such as data centers, it is clear that overall power generation capacity across the U.S. must grow in the coming years. We are optimistic that we are beginning to see the initial stages of an increase in utility projects to meet this expected demand. The quality of projects we are seeing in this market remain favorable, as does our ability to secure new orders on the projects we pursue. To wrap up, we are pleased with our financial performance in the first half of our fiscal 2024, and our outlook for each of the markets we serve remains favorable. We benefit from a strong balance sheet and a $1.3 billion backlog that we believe will sustain our profitability through fiscal 2024 and into 2025. Meanwhile, our near and medium-term priorities remain unchanged. We are focused on growing our electrical automation platform, expanding our services franchise, and diversifying and expanding our electrical products and solutions portfolio. We remain committed to these initiatives and are pleased with the progress we are making in each of these key areas. With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail.