Powell Industries, Inc.

Good day and welcome to the Powell Industries Fiscal Third 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 now like to turn the conference over to Ryan Coleman with Alpha IR. 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 third 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 August 7th. The information on how to access the replay was provided in yesterday's earnings release. Please note that information reported in this call speaks only as of today, July 31st, 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 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.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2024 third quarter results. Before we get started, I'd like to take a moment to recognize the devastating effect that Hurricane Burl has had on the greater Houston area, and most importantly, the effect it has had on our Powell team members, many of whom were impacted by the storm's initial hit to the city, as well as the well-documented and lengthy impact of power availability in the Houston region, which is home to our company and so many of our employees. Our concern for the safety and well-being of our employees is not only our number one priority, but also extends beyond the job site and the time they spend here at our facilities. They have shown incredible resolve dealing with the adversity of the past month, and each of them have Powell's full support as the Houston area returns to normalcy. Operationally, our facilities here in Houston were without power for varied lengths of time. The longest impact was nearly five working days. We are working with our clients to minimize any subsequent impact on production schedules, and do not expect a material impact on our revenue outlook for the fiscal fourth quarter. With that, let's review our quarterly results. Our fiscal third quarter reflects the strong operational execution the Powell team continues to deliver and further validates our strategy as well as our unique market position as an integrator of complex engineered-to-order electrical solutions. Revenues in the quarter were 50% higher than the prior year as we saw strength across nearly all of the market sectors we serve. The revenue growth was driven by our core industrial end markets, as oil and gas and petrochemical revenues grew 56% and 158%, respectively. Our utility sector also delivered a strong performance. Mike will provide further detail on our results by sector in a moment. We booked $356 million of new orders in the quarter, the highest quarterly total of fiscal 2024, and orders were spread broadly across our key end markets. We saw a significant increase driven by our electric utility sector, further underscoring the strength we are seeing in that market, while we were also awarded a notable petrochemical order for a greenfield project to be located in North America. In addition to the higher revenues, our focus on project execution and operational efficiency continue to support improved gross margins. Our gross margin, our gross profit in the quarter nearly doubled versus the same period in fiscal 2023, achieving a gross margin of 28.4% of revenue. This is an improvement of 620 basis points compared to the same period in fiscal 2023 and is the highest quarterly gross margin Powell has recorded in over a decade. Another encouraging dynamic we are observing is the improvement in gross margins across the whole of our business, including many of our non-industrial markets. Historically, projects in these markets tend to carry a slightly lower average gross margin than highly complex electrical solutions. However, we are now seeing that gap narrow as the economics of these non-industrial markets are improving and Powell becomes more effective in our manufacturing and delivery process. Our backlog was effectively unchanged, sequentially at $1.3 billion, and remains the highest in Powell's history. We continue to be very pleased with the overall composition of our backlog, as well as the timelines and margin profile of the projects that constitute our order book. On the bottom line, we recorded net income of $46.2 million, or $3.79 per diluted share, which was more than double the $18 million for $1.52 per share in the prior period. Our capacity initiatives continue to move along as planned to help further facilitate the execution of our current backlog, as well as plan for modest volume growth going forward. Last year, we completed the expansion of our Houston facility on the Gulf Coast, which 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. The previously announced expansion of our electrical products factory in Houston is also progressing as planned. This $11 million factory addition 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. Most recently, in early July, We acquired nine acres of property neighboring our Houston headquarters location for a total consideration of $5.5 million. We are currently undertaking some minor remediation work to get the space prepared for productive use, and we expect this additional property to contribute incremental revenue in fiscal 2025. Year-to-date, our R&D spend is up 49%, as we advance our innovation initiatives to develop new technologies and broaden our product portfolio. 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've stated before, a critical area of focus for Powell remains the acquisition of talent at all levels to support Powell's long-term growth strategy, along with opportunities we see across most of our key markets. Looking forward, expectations for project activity and new orders across our markets are relatively unchanged. Overall, quoting activity remains very healthy and balanced. Within the oil and gas LNG market, the 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 US export activity. Near-term activity remains subdued as a result of the US Department of Energy policy regarding LNG export permitting. However, we have not altered our long-term planning for this market. The fundamentals for our oil and gas and petrochemical markets continue to support our expectation for continued strength for these sectors. This sector includes energy transition projects, such as biofuels, carbon capture, and hydrogen, areas where Powell has not historically participated, but where we are seeing a substantially higher volume of project activity. Activity within our commercial and other industrial market also remains attractive, which includes activity within the data center market. As we outlined on our second quarter call, we believe the strong growth that we have seen so far in this 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. Lastly, the outlook for our utility market remains very positive, supported by a recent return of new generation work in addition to Powell's leadership in utility distribution substations. We've been very pleased with both the volume of projects coming to market as well as our win rate on the orders we have booked thus far. Overall, we are very happy with our third quarter performance, and we remain confident in the composition of our current backlog, the near and medium-term outlook for our key end markets, as well as our strong financial position. Altogether, we continue to expect a favorable operating environment for Powell as we focus on successfully delivering the projects and backlog to our customers and advancing our strategy. With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail.