Powell Industries, Inc.

Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a consent 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 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 Mr. Robert Winters, Vestalations. Thank you. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us for Powell Industries' conference call today to review fiscal year 2026 third 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 August 11. The information on how to access the replay was provided in yesterday's earnings release. Please note that information reported on this call speaks only as of today, August 4, 2026, 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 company filings with the Securities Exchange Commission. With that, I'll now turn the call over to Brett.

Thank you, Bobby, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2026 third 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 delivered a very strong third quarter. highlighted by a record for new orders in a single quarter, which in turn has elevated our backlog to over $2 billion for the first time in our 79-year history. Revenue grew 9% compared to the prior year, and our continued focus on productivity delivered a gross margin of 30.6%. Revenue growth in the quarter was once again driven by our commercial and other industrial and electric utility markets, with continued strong results in the oil and gas sector. Each of our core end markets are exhibiting high levels of activity, and the nature and scope of these projects are central to Powell's core competencies. The electric utility market remains very active, underwritten by structurally undersupplied power demand, while data center order activity for Powell has clearly inflected higher relative to just one year ago. Meanwhile, in our industrial end markets, the growing importance of U.S. LNG exports in the global energy landscape remain supportive of demand for the electrical infrastructure required across the natural gas supply chain. Overall, Powell was awarded a record $934 million of new orders in the third quarter, which is nearly three times higher than the prior year and nearly double the order total from last quarter. Included in this order total is the previously announced Mega Data Center order, which is in excess of $400 million for phase one of a multi-phase behind-the-meter design of on-site generation assets. In addition, Powell was awarded $75 million for the electrical distribution equipment supporting a new petrochemical facility for the production of fertilizer, and we received an award of approximately $60 million for a new LNG liquefaction facility. Both of these projects are located along the U.S. Gulf Coast. Outside of these three mega awards, our order book in the quarter was comprised of more than $350 million of new awards balanced across the market verticals in which we compete, and a testament to the volume and diversity of our order intake. Our backlog is now nearly $2.4 billion, again the highest in Powell's history, and it is notable that we have booked over $1.8 billion of new awards over the past three quarters. The visibility provided by our backlog continues to extend, as we are booking awards that we'll be executing deep into our fiscal 2028. The order book also remains balanced across the Powell footprint, which, combined with actions we are taking to create incremental capacity, will improve opportunities to further drive productivity across our facilities. Those actions include a lease that we entered into late last year, providing an incremental 30,000 square feet of manufacturing capacity near our Ohio facility. Part of that agreement included the option to expand that lease, which we expect to execute in response to accelerating order activity. And in April, we entered into a lease agreement for a facility near our Houston facilities that is providing another 50,000 square feet of manufacturing capacity. We are now operating two satellite engineering offices around the Houston metro area to add critical engineering talent to our world-class electrical and mechanical engineering and design teams. These facilities are strategically located in the Energy Corridor and North Houston to expand our coverage of the metro area. Lastly, the expansion of our Jacinto Port facility that we announced one year ago is nearing completion. This investment will add 335,000 square feet of capacity to initially meet the accelerating demand for custom power control rooms for the LNG market. Over the long term, this capacity is fungible and can be utilized to serve our customers across any of our markets. We expect the work at Jacinto Fort to be completed in the next month or two and for utilization to ramp fairly quickly. When fully utilized, we would expect the expanded yard to support well in excess of $100 million of incremental annualized revenue. Each of the incremental initiatives that we have taken across the company over the last 12 to 18 months will result in an expansion of our total footprint of manufacturing, office, and warehouse facilities of over 20% by the end of fiscal 2026 as compared to the end of our fiscal 2025. Further, during our third quarter, the board has authorized the acquisition of a lease facility that will support approximately 300,000 square feet of manufacturing space. Over the last several quarters, our manufacturing and service leadership teams have progressed several options in proximity to our existing facilities. We are planning to have this future facility available for manufacturing activity late in our second or early third quarter of our fiscal 2027. The facility will be supported by increased fabrication throughput as part of a previously announced $8 million investment in new equipment and upgrades at our Mosley facility. We continue to evaluate the prospect of a Greenfield Powell-owned facility that would require $70 to $100 million of capital, provide upwards of an owned 250 to 300,000 square foot factory, which would also support increased fabrication. This planning process continues to progress, and we expect to make a decision in the near future. Our M&A pipeline also remains healthy and growing, and we are evaluating a number of opportunities to better position us within key growth markets. These include complementary products and or capabilities to our current portfolio or oriented toward building out our growing services franchise. Our efforts here are tempered in part by what we regard as rich valuations across the space, though we continue to engage where we see value and a strategic fit. In closing, we are very pleased with our third quarter results. Commercial activity in our core end markets remain strong, underpinned by durable and secular demand drivers, that should continue our momentum as we close fiscal 2026 and prepare for our fiscal 2027. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail.

Thank you, Brett, and good morning, everyone. In the third quarter of fiscal 2026, we reported total revenue of $312 million compared to $286 million, or 9% higher versus the same period in fiscal 2025. New orders booked in the third fiscal quarter of 2026 reached a record high of $934 million, which was anchored by the $400 million-plus data center order that was awarded in April and discussed in our prior quarter release, as well as two additional core industrial mega-orders booked during the third fiscal quarter, one for an LNG project for roughly $60 million and the second for a petrochemical project totaling about $75 million. With these wins, orders in the third fiscal quarter were higher by $572 million versus the same period in the prior year and higher sequentially by $445 million. The resulting book-to-bill ratio for the third fiscal quarter is 3.0 times while this ratio on a fiscal year-to-date basis is 2.2 times. with reported backlog reaching a new high of $2.4 billion at the end of the third fiscal quarter. $967 million higher versus one year ago and $619 million higher sequentially. At the close of our third fiscal quarter, our core industrial end markets across petrochemical and oil and gas represent 30% of the total backlog while the electric utility and commercial and other industrial markets each represent 24% and 40% of the $2.4 billion of backlog respectively. Now turning to revenue. Compared to the third quarter of fiscal 2025, domestic revenues were higher by $26 million or 12% while international revenues were slightly lower by $1 million to $61 million on the softer Canadian market. From a market sector perspective, revenues were higher by $27 million, or 54% in the commercial and other industrial market versus the third quarter of fiscal 2025, while the electric utility market increased by $14 million, or 18% versus the prior year. Across our core industrial end markets, the oil and gas sector was relatively flat versus the prior year, while the petrochemical market was lower by 49%. The light rail traction power sector was 7% lower versus the same period one year ago on light volume levels relative to the total business. Gross profit increased by $7 million to $95 million in the third fiscal quarter of 2026 versus the same period one year ago. Gross profit as a percentage of revenue was roughly flat versus the same period one year ago at 30.6% of revenue. and with 90 basis points higher sequentially. Versus the same period one year ago, the mix of projects and the associated margin rates exiting backlog remain very consistent and are continuing to benefit from strong execution and volume leverage across Powell's global footprint. Selling, general and administrative expenses were $27 million in the current period, and more, an increase of $1.6 million compared with the same period a year ago. Primarily driven by the higher compensation expenses across the business, which is inclusive of the current year impact of the RENSDAQ acquisition. SG&A as a percentage of revenue was lower by 20 basis points year over year to 8.6% in the current fiscal quarter and lower sequentially by 10 basis points. In the third quarter of fiscal 2026, we reported net income of $52.2 million, generating $1.42 per diluted share, compared to net income of $48.2 million, or $1.32 per diluted share in the third quarter of fiscal 2025. During the third quarter of fiscal 2026, we generated $100 million of operating cash flow principally driven by higher earnings generated in the third fiscal quarter while also benefiting from favorable working capital resulting from the strong booking activity. Investments in property, plant, and equipment in the fiscal third quarter totaled $6.5 million, reflecting an uptick in capital deployed for the offshore fabrication yard expansion project. but also strategic spending for CapEx to accommodate the increased throughput resulting from commercial activity. At June 30, 2026, we had cash, cash equivalents, and short-term investments of $634 million compared to $476 million at September 30, 2025 and $545 million at March 31, 2026. The company does not hold any debt. Looking forward, we remain encouraged by the sustained commercial activity across our core end markets, as highlighted by record bookings in the third quarter and a record backlog at quarter end. The continued momentum we are seeing in the electric utility and data center markets, coupled with early signs of a recovery in the petrochemical market, reinforces our confidence in the quality and the durability of future demand. These achievements reflect both the strength of customer investment and our ability to secure and execute large strategic projects, providing meaningful momentum as we enter fiscal 2027. Considering this backdrop, together with a stable pricing environment, disciplined project execution, and a strong liquidity position, we believe that Powell is well positioned to deliver another year of strong financial performance in fiscal 2027. At this point, we'll be happy to answer your questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from John Franchette with Sudoti and Company. Please go ahead.

Good morning, guys, and thanks for taking the questions. I'd really like to start with the gross margin profile. It continues to be elevated and impressive. I'm curious if you could talk a little bit about what the competitive landscape is like and what kind of ability you have maybe to be more aggressive on pricing given this incredible demand that you have.

Hey, John. Morning, it's Brett. Let me take the second part first. I'll have Mike jump in on some of the color on the margin. We are seeing some opportunity for price in the market. On the commercial side, I think you'll find a theme that deliveries speed is still driving the overall value prop to the market. but that's not, I wouldn't say that's across all the sectors we're in in Powell. So the industrial market probably a little bit more price sensitive overall. Margins are good and equivalent but more opportunity on the commercial market I'd say of the three verticals that we chase and I'd say the competition follows the same sort of theme. So a little bit more sensitive in the industrial market and less so, not that it's not competitive in the commercial market, but it is about speed and capacity and what you can do to serve that market as quick as you can.

Hi, good morning, John. I'll jump in to add some commentary there on the margins. But overall, we're really pleased about the margin performance in the quarter. But some of the core pillars driving margins in the quarter, the product mix across the business, continued operating leverage across our footprint. And as Brett said, the pricing stability in the markets continue to meet our expectations. And combined, we were just over 30% GP for the quarter on a year-to-date basis, just shy of that 29.6. We are watching inflation closely. We are seeing moderate inflation on core commodities, copper, aluminum, steel, things of that nature, engineered components. But we've got some actions in place, whether it's commodity hedging, strong commercial discipline practices that are helping offset some of this. But we are seeing a little bit of a headwind from an inflation perspective. And then finally, project closeouts. With respect to project closeouts on a year-to-date basis, Project closeouts have contributed roughly 100 basis points through the first nine months. That compares to about 130 BIPs a year ago on a year-to-date basis. So we are still seeing strong project execution through the system and across the footprint.

Got it. Got it. and just it's great to see you leaning into capacity expansion. I'm actually curious, maybe you can provide a little color if you decide to do a new greenfield facility, what's going into that thought process and maybe talk a little bit about what you're seeing on available labor as you expand the capacity.

Yeah, we talked last quarter about the capacity piece during the last board. We had a really thorough discussion with the board, so pleased to be working towards The lease facility, with the growth of the backlog certainly accelerating in the last two, three quarters, more efficient to do the lease facility. We are going to spend some capital doing some cranes and things that we'll leave there over the term of the lease. And we feel pretty good that we can support that with throughput of our existing fabrication. And so that was one of the discussions that we're having in the prepared comments, the efficient use of capital in the lease. But as we bring products still out of the R&D pipeline, supporting our organic strategy, Depending on what we do M&A-wise, we do see a future need for increased Powell fabrication, and that will drive the Owen facility. So near term, we're going to pivot to the lease to handle the backlog growth and grow the company that way. And then we'll time the Owen facility to handle the methodic growth of the expanded pipeline for all of our verticals. On the labor side, again, consistent with my comments in prior quarters, John, I wouldn't tell you, there's not a day goes by, there's not something we're out looking at. It is interesting to watch our peers in the industry. There's a lot of construction labor being put to work right now. We've seen this cycle before. It's a little bit wider. We're really comfortable with what happens in the Gulf from Louisiana around to south Texas down the Mexican border when you get a lot of construction, what happens and how that pulls. from across the contiguous states and even into Canada when it gets really busy. And now we're seeing other parts pull labor, North Texas up to the Midwest and even up to the Northwest parts of the states. And so a little different dynamic on craft labor. It hasn't impacted us yet. I do think eventually it will be something we're going to have to deal with creatively. We don't see it in the next couple quarters. So nothing immediate, but our radar is up, and I do believe it'll be a challenge in the 27-28.

Makes sense. Thanks, Brett. I'll get back in the queue.

All right, John.

The next question comes from Tom Osano with JP Morgan. Please go ahead.

Hi. Good morning, everyone.

Hey, Tom. Good morning, Tom.

Thank you for taking my questions. If you could talk about the modest revenue shortfall versus street expectations, could you help us understand the drivers? Was it primarily segment mix coming from Canadian market you talk about or petrochemical softness versus timing and backlog conversions? Any color on which factors matters most would be helpful. Thank you.

Hi, good morning, Tomo. This is Mike. I'll address that question. First of all, being a projects-based business, there's some variability with the ins and outs in the quarter and the timing of some of the big components that are going into our projects. So nothing specific to call out at all on the revenue cadence. It was a 9% V versus the prior year, which we felt pretty comfortable with. As we build the backlog, you know, that's probably a good barometer to kind of pinpoint. We're not going to see, you know, double-digit Vs probably given the backlog conversion rate that we've seen over the last, call it trailing 12 months or year-to-date anyway. So nothing specific to call out. It's going to be lumpy as we go forward, and You know, this quarter was really no exception. It was, as I said, we were very happy with a 9% B overall for the quarter.

Thank you. I appreciate it. And follow up on orders and demand trends. Could you share more color, like what are you seeing on the demand side by three verticals going forward? Thank you.

Yeah, I'll take that one, Thomas, Brett. All three verticals heading in today, very active. We watch it very close every week. I dig into the color of our database to see what the activity is going forward and looking for any signs of major concern. But in terms of commercial and other, which includes the data center market, next couple quarters there's plenty of activity. The LNG market remains very robust for us. I feel very good about the investment we're making in offshore. Again, I feel good about the timing of that yard coming online here in the next month or so. We'll get some revenue laid down there on a POC basis pretty quick. And utility market, again, very robust, especially in the United States. A little less so in Canada, a little softer there generally as compared to the States, but we're able to use some of that capacity to help support some of the ongoing work here in the States and bring it across the border. I feel pretty good heading through the back half of the calendar year and into calendar 27 where we sit today.

Thank you. I appreciate it, Brett and Mike.

Thanks, Tomo. Okay.

The next question comes from Manisa Maya with Cantor. Please go ahead.

Good morning, Mike and Brett. Good morning. A couple of questions, one maybe for both of you. Have margins peaked?

Following up from John's comment, I wouldn't say they peaked. The opportunity to grow would be continued opportunity in the commercial and data center and speed, as long as we continue to serve that. Now, that blends into the existing backlog, Manish. Paul, the convertibility takes one to three years. So you've got to kind of phase that in on the model. The other opportunity that is the other parts of the strategy, which we continue to work pretty hard with the automation and traction we make in the service strategy. So those are all, both of those strategic pillars are accretive to our current gross margin levels. And there's a lot of activity as well in those strategies across the markets we serve. That will continue to blend in higher and help us raise margins. But as Mike noted earlier, we are a chunky business when it comes to reporting out. So it could be a little chunky quarter to quarter. But overall, I think there is still positivity over the long term in our margin profile.

Secondly, there's been a lot of discussions about capacity coming online in the industry. Obviously, it doesn't pertain to each and every Part of the business you might be participating in. But just more broadly, Brett, how do you think about the capacity that's coming online pertaining to your specific business? You know, at this juncture, clearly it seems that demand is outstripping supply, but at some point it may catch up. And I guess there's been a lot of debate recently about how that might potentially impact margins for all the companies, including yourselves. So maybe if you can help us understand from a big picture standpoint and how it might be potentially different for you.

I love the question. This is a good chat that we have at the board and how we're driving our strategy forward. And so I think it's safe to say Mike and I are building a strategy that is 10, 15, 20 years out in time. I think there are parts of what we're doing today that are, you know, optimistic, maybe slightly moving into the strategy side of things with the commercial and other. But, you know, the rate of this market at some point will attenuate. And what we're doing with, you know, even on the lease facility, we want to pivot that to the commercially owned facility, but it's supportive of good organic and M&A ads to the business for portfolio filling, How are we going to attack the utility market long-term, taking the long-term look at those markets on distribution, transmission, things like urbanization? Yes, there's the short-term things that are going on in the market. We're certainly aware of that and watching that, and we understand the risks, but we're really driving the business long-term. We make the investment in the fixed asset to add a factory, whether it be here in the Houston area or other states that we're looking at. It will be supported by a long-term strategy against primarily utility and in the industrial market. And I'm not discounting our long-term play in the commercial and other, but we're allocating small amount of capital to that. It's increased a little bit over the last couple of years on the strategy side around products and services, but the bulk of our investments are still built around industrial and utility. And that's really where we gain the confidence to make that, will gain the confidence to make that fixed asset investment on behalf of our investors.

Just on the backlog, Brett, obviously a very impressive backlog. Perhaps if you can just talk about how we should think about the backlog burn over the next 12, 18 months. Mike, just on that, it would be helpful to have the next 12 months backlog number if you might have it.

Yeah, there is a slight, I mean, given the numbers, it's kind of math now, Manish. We had a really strong quarter activity. It looks robust going out. So Mike will jump in here on the convertibility. It has attenuated a little bit. The overall market is still, as I noted, one to three years. But if you just look at the slug that just came in, I think as a team sport across Powell, really, really pleased with how well our team's operationally are working together to continue to maximize and find opportunity to drive productivity, to find increased capacity, to help serve and break up projects at different facilities and work with our clients to meet the need on the delivery. So that's been a real positive. But on the math side, Mike? Yeah, good morning, Manish.

So of the $2.4 billion of backlog, roughly 1.3, just under 1.3 billion, will be convertible over the next 12 months, so roughly 54%. So as we spoke last quarter, that was in the low 60s with this big slug of orders, the $900-plus million order bookings that we recognize this quarter, that went down to about 54%. And on the book and burn cadence, that's still a very healthy burn. We're seeing about, on average, you know, it's going to vary from quarter to quarter to quarter, but on average, it's about $75 million a quarter of book and bill.

Okay, great. Thank you so much.

Okay.

Next question comes from Alex Fidel with Texas Capital. Please, go ahead.

Thank you. A very nice quarter. Could you more specifically talk to the $400 million data center project

what that revenue recognition cadence looks like over the next few quarters and what the future phases of work could look like on this project.

Hey, Alex. Good morning. It's Brett. Thanks for joining me today. The project came in pretty quick from its initial arrival to closing the award. The burn rate from inception isn't really too dissimilar from any of our other large projects, the other jobs we take around 100, 120, 150 million. It's roughly a two, two and a half year burn. It is a job that we broke up into multiple factories. It's touching at least five facilities here in North America. Worked with the client on the approach, so they're fully transparent on how we're addressing the job. It is going to have some interesting dynamics that we're anxious to put through the system relative to not a lot of design work. And so we're anxious to see how it goes through the system on a product side from a flow standpoint. It is a behind the meter generation asset. And there are multiple phases in the future. And so we're excited. And we believe the future phases will be and a copy to the job that we just took, assuming we're successful.

And to follow up on that, with this customer or other similar customers, are you looking at other projects that are maybe in your bid pipeline of this size for this exact same type of product?

This is a pretty big one. I mean, if you look at the $100 to $200 million or maybe just sub 100 kind of area on the commercial side. There are clearly more of those that have amped up what we qualify as a mega project. And a lot of that is being driven by, or a fair amount of that momentum is being driven by the commercial. There's still a fair amount of LNG work out there that we're very comfortable with as well. But yes, the commercial markets are bringing what we call mega jobs over 100 million in a little bit more frequent. upwards of $400 million. You know, there's not a lot in the pipeline that's that large other than the future phases of this. There is potential for that, but nothing in the near term.

Very helpful. And then could you touch upon the REMSDAQ acquisition that's performing?

Yeah. The REMSDAQ, I go back to what I said when we actually – talked about this job and some of the data center jobs. We've always planned to bring the REMSDAC product portfolio into the U.S. utility market and the Canadian utility market, for that matter. And having REMSDAC on board, we were very fortunate on timing that when the data center market started looking for some of the products that we have that required some automation to do some creative We've been bringing their product. into the States, into the commercial market largely. And so really well-timed there. And then just the core operation of REMSDAC, very pleased with the progression. One of the things that attracted us to the REMSDAC was A, the box, but B, their roadmap for technology. And we've now done a good job of integrating their team and our team together, understood really all the particulars on the roadmap. And we anticipate that the next generation of the controller that attracted us will be out in the market in the next couple of quarters. So we're pretty excited.

Great. Nice quarter. Thank you.

The next question comes from Chip Moore with Rock MKM. Please go ahead.

Hey, Brett and Mike. Thanks for taking the question. I guess for me, I think in data center, Today, there was some news around optical equipment and some communications equipment getting clamped down from China. Not that that extends to switch gear, but just curious your thoughts on some of the domestic opportunities for Powell, whether it's defense-centric or public power. What are you seeing there, and how do you like that opportunity?

Yeah, I have to look at that update. As I think you know, Chip, pretty well, we don't really have a tie to the Asian supply side of things, not because the company has ever been anti that part of supply. It's just not something we've done. So we do sit in a unique position in that our content, as we manufacture, has really little tie to that. So there is an element. We've talked on a couple of Calls in the past around defense spending. We are pursuing that. We have a very good story to tell. I'd say that our opportunity funnel there is also growing. I can't report on results yet, but I do anticipate we'll get over the hump on that here in the next couple of quarters, and we'll have a really solid story to add into the color on future results. And so as that permeates and serves other secular markets such as utility, or even the commercial side from a supply chain side and risk, I feel really strong that Powell's in a great position to serve that market with how we're set up on supply chain and manufacturing.

Great. And, you know, maybe for my follow-up, just an update around new products and maybe tie that into some of the potential capacity expansions that you might make. Any caller there? Thanks.

Yeah, we've had definitely R&D is trending up. Some of these newer projects, when you look at the portfolio of electrical kit that we provide to the market, require certain testing and certificates. And you've got to go to third party labs. All of us do. Anybody in the electric business has to do this in the switchgear. And so we've had some increased R&D and a little It's all for good because it's supporting these large orders, but we've had to take some of our resources and divert it to short-term need on the R&D side where you have to go build samples to get a rating to either handle the heat or the short circuit around the switchgear. As we've grown the business, we've grown in these market verticals, we've had to pivot a little bit in the short term and spend some more R&D. and divert some R&D resources to address those needs in our portfolio gap. We felt good when we took the job that we would meet the rating, but you've got to go and get the rating. And so that's a little bit of the R&D build that you've seen. On the organic R&D side, it pulls some of the resources away in the short term, but yet I do feel good that everything we're progressing will support that eventual and many more new facility that we're going to own. And that'll be critical. Those two are very closely linked. We're not going to go invest in that facility, which will require an expanded fabrication support until those products are solid and ready to be released into the market. And that's the timing we're working through right now.

Perfect.

Thanks very much.

Once again, if you have a question, please press star then one. The next question comes from John Brock with Kansas City Capital. Please go ahead.

Good morning, Brett. Good morning, Mike. Good morning, John. Brett, sort of a data center question. We've seen some growing resistance publicly from consumers about data centers and moratoriums and so on, and I think it's going to be incumbent upon data centers to improve the efficiency, reduce electrical consumption and so on, and have been reading about 800-volt data centers and so on. And I guess my question is, what role might PAL and its products have in improving the efficiency of data centers? Could we see an incremental benefit to PAL as data centers evolve? Could we see more PAL content, possibly?

possibly. You know, on the utility connection, whether you're connecting on a grid load utility scale or you're going off the meter, let's look at those two cases. If you're connected to the utility, excuse me, both of those are around the 38, where it steps in the 38 KV, very strong market for Powell. So when you talk about behind the meter, like this large one that we took, that will kind of to Alex's question earlier, John, that actually does drive up our content because that is more like a power island, we would call it, more like an offshore oil and gas platform where they're self-generating and they're not able to run a cable from shore several hundred miles into the sea. That actually does increase the content for Powell from a switchgear, switches, control, and services total package. It actually increases our are addressable spend on the outside of the data center. And to date, we really aren't in the inside of the data center. The 800-volt design, it is going to happen. I continue to, like a lot of people on the call today and in the market, watch the different progression of the technology. We certainly have our fingers into what's going on there. We are contemplating things that may pivot us into that area as much as it might say AC gear or DC gear to support either design or a mix of the designs. But at the compute level where we don't compete, the one megawatt rack is definitely on its way. And it is built around DC distribution technology. And so as that moves up the power curve, the outside of the data center will remain. largely, AC Energy. There's a mix of ideas to do DC. I mean, a really wide-ranging mix of DC stuff that will get inside the data center. And yeah, I still see an opportunity for Powell, you know, more midterm on the DC side, but we definitely are looking at it.

Okay. All right. Thank you. And Mike, as we think about the expansion plans, and over the next couple of years, would you think that there would have to be some lift to your SG&A spend to meet those expansion plans?

Yeah. Good morning, John. I do think there will be some pressure on SG&A as we stand up these new facilities. I mean you can't you can't switch them on immediately so there's a transitional period while you stand them up and get them ready for production. We're doing all that we can to offset any impact to the business from both whether it's a you know a gross profit percentage or a SG&A percentage the cost of the business we're doing everything we can to mitigate any impact that that we see, but I think as we go forward, some of the larger initiatives, as Brett mentioned, the large facility that we're preparing to get under lease, there will be a transitional period there where we're standing it up and we're spending money before it's actually productive.

Okay, thank you, Mike.

This concludes our question and answer session. I would like to turn the conference back over to Brett Cope, CEO, for any closing remarks. Please go ahead.

Thank you, Ashya, and thank you, everyone, for joining us on the call this morning. We are very pleased with the results of our third fiscal quarter, and we are encouraged by the commercial activity across each of our core end markets. We believe the momentum that our team has built throughout the year will continue into our fiscal 2027. I would like to thank our incredible employees through their talent, leadership, and focus have prepared Powell well for this growth cycle in our business. Thank you to our valued customers and our supplier partners for their continued trust and support of Powell. Mike and I look forward to talking with you all next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.