POWELL INDUSTRIES INC Q1 FY2025 earnings call

• Revenue growth of 24% and new order growth of 36% in fiscal 2025 first quarter. Revenue increased in all major market sectors. - Order total of $269 million with broad strength, led by a large domestic LNG project award. - Utility market strategy a bright spot, accounting for nearly one-third of backlog. - Gross margin roughly flat vs prior year but lower sequentially due to seasonal challenges and lack of fourth quarter project closeouts. - Backlog of $1.3 billion well balanced across markets and geographies. - Capacity initiatives advancing as planned, remediation work at Houston facility progressing, expansion of electrical products factory on schedule. - R&D spend up 26% to $2.5 million in first quarter. - Investing in talent, opening engineering satellite office in Houston.

Powell recorded revenue growth of 24% and new order growth of 36% compared to the prior year. Revenue increased in every major market sector, with oil and gas sector up 14%, electric utility up 26%, and commercial and other industrial sectors up 80%. Net income was $35 million in the first quarter or $2.86 per diluted share, 44% higher than the prior year. Backlog was $1.3 billion, increased by $48 million compared to the prior year and $14 million sequentially. Gross margin was roughly unchanged from prior year but lower sequentially. R&D spend was up 26% vs one year ago to $2.5 million in the first quarter.

• Expect solid performance in fiscal 2025. - Fundamentals for oil and gas and petrochemical markets support continued strength. - Commercial and other industrial market, including data center market, remains healthy with growth opportunity. - Utility market outlook very healthy with higher project volume coming to market.

• Competition and competitive pressures. - Sensitivity to general economic and industry conditions. - International political and economic risks. - Availability and price of raw materials. - Execution of business strategies.

Q: Hey, good morning. Thanks for taking the questions. Brett, Mike, maybe we could start on the project pipeline you're seeing here in the new year post-elections. I guess, what you're seeing on LNG and any more color on that order you won this quarter?

A: Morning, Chip. It's Brett. Yeah, nice award in the first quarter. Roughly $75 million, give or take. Of the first quarter booking number. I think I noted last quarter that the funnel activity in the market started to pick up, I think in anticipation of the change in administration. Nice to see that they started the permitting process again at least. As the new DOE secretary has gotten in there, I'd say that in line with that, from the end of the year until this Q1, activity has picked up that much more. So we are very encouraged by the outlook for that particular market.

Q: Good morning, Brett and Mike. And congratulations on another great quarter. I'd like to hear your thoughts about the capacity expansion, maybe a little bit of an update. I know it's largely geared towards new product development. But is there any it's about expanding overall production capacity, and if so, can you kind of quantify that?

A: Yep. Good question, John. Yeah. The product factory, as we noted in prepared comments, last two quarters, is on track. So mid-fiscal 2025, which will be another couple of months. The building is up, roofs are on, cranes are in. So just over there a couple of days ago, checking it out. Looks great. So these products roll out organically R&D. Including the nine acres that we bought in June of last year, for other capacity options, Powell can quickly spin up. There's about half that space has other potential. We are currently doing some soil sampling for that to maybe consider pivoting for optionality. And then in addition to that, so that's about half of that nine acres. And then if you look elsewhere in Powell, the offshore channel, and even at the product factory, we have another twenty acres. All in all, about thirty acres that we can convert and move especially on substation opportunities that we needed to move say, to be able to take more opportunity there, move more outside of the one roof, and create up the gear. So kind of alluded to that a little bit in Q1. Back in December that we are looking at the footprint, continue to do it, as well as maybe other inorganic opportunities more mid-term. So it is more active, and we're watching it very closely. And understanding how quick and, you know, how much CapEx and just matching that to the market so we can if we do pull the trigger, we can maximize the return.

Q: Good morning, Brett, Mike. Just, you know, there's been a lot of noise in the LNG sector. And just want to make sure the $75 million award in this quarter has all the necessary permits, requirements, and so on and so forth to move forward, and that there's nothing that they're waiting for.

A: Yeah. No. This one has all the permits. It is a full go. It is just one that historically was out there for years. Paused for different reasons other than permitting, and but their permit's always been good.