UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)



ý☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~December~~March 31, ~~2017~~2023



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-12488

Powell Industries, Inc.

(Exact name of registrant as specified in its charter)



~~Delaware~~

	~~88-0106100~~
Delaware		88-0106100
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

8550 Mosley Road ~~Houston, Texas~~		~~77075-1180~~
Houston
Texas		77075-1180
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(713) 944-6900

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common Stock, par value $0.01 per share

POWL

NASDAQ Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý☒ Yes ¨☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ý☒ Yes ¨☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and ~~"emerging~~“emerging growth ~~company"~~company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer¨

☐

Accelerated filerx

☒

Non-accelerated filer¨

☐

Smaller reporting company¨

☐

Emerging growth company¨

~~(Do not check if a smaller reporting company)~~

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨☐ Yes ý☒ No

At ~~February 2, 2018,~~May 1, 2023, there were ~~11,450,938~~11,860,683 outstanding shares of the registrant’s common stock, par value $0.01 per share.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

TABLE OF CONTENTS

PART I — FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Unaudited)

(In thousands, except share and per share data)


	December 31, 2017			September 30, 2017				March 31, 2023		September 30, 2022
ASSETS							ASSETS
Current Assets:							Current Assets:
Cash and cash equivalents	$	49,587		$	68,359		Cash and cash equivalents	$	152,039	$	101,954
Short-term investments	23,101			26,829			Short-term investments	11,085		14,554
Restricted cash	19,402			15,104
Accounts receivable, less allowance for doubtful accounts of $158 and $179	78,978			53,852
Costs and estimated earnings in excess of billings on uncompleted contracts	38,985			51,554

Accounts receivable, less allowance for credit losses of $431 and $344							Accounts receivable, less allowance for credit losses of $431 and $344	170,178		106,111
Contract assets							Contract assets	63,560		88,351
Inventories	18,535			18,448			Inventories	58,690		50,415
Income taxes receivable	7,587			8,222			Income taxes receivable	119		105
Deferred income taxes	—			3,539
Prepaid expenses	2,804			3,701			Prepaid expenses	2,710		4,679
Other current assets	268			463			Other current assets	4,819		3,814
Total Current Assets	239,247			250,071			Total Current Assets	463,200		369,983
Property, plant and equipment, net	137,269			139,420			Property, plant and equipment, net	97,910		98,628
Restricted cash	8,374			9,747
Operating lease assets, net							Operating lease assets, net	1,665		2,179

Goodwill and intangible assets, net	1,646			1,719			Goodwill and intangible assets, net	1,003		1,003
Deferred income taxes							Deferred income taxes	10,944		9,161
Other assets	14,057			13,800			Other assets	12,374		12,426
Deferred income taxes	5,060			229
Total Assets	$	405,653		$	414,986		Total Assets	$	587,096	$	493,380
LIABILITIES AND STOCKHOLDERS' EQUITY							LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:							Current Liabilities:
Current maturities of long-term debt	$	400		$	400

Accounts payable	28,780			33,269			Accounts payable	$	51,209	$	63,423
Accrued salaries, bonuses and commissions	10,044			14,984
Billings in excess of costs and estimated earnings on uncompleted contracts	36,729			26,166
Contract liabilities							Contract liabilities	178,217		79,857
Accrued compensation and benefits							Accrued compensation and benefits	17,789		24,785
Accrued product warranty	2,890			3,174			Accrued product warranty	2,711		2,345
Current operating lease liabilities							Current operating lease liabilities	989		1,777
Income taxes payable	1,437			1,219			Income taxes payable	2,584		1,720
Other accrued expenses	4,371			5,860
Deferred credit ─ short term	—			507
Other current liabilities							Other current liabilities	16,192		12,466
Total Current Liabilities	84,651			85,579			Total Current Liabilities	269,691		186,373
Long-term debt, net of current maturities	1,200			1,600

Deferred compensation	5,628			5,314			Deferred compensation	9,114		7,749
Long-term operating lease liabilities							Long-term operating lease liabilities	731		545
Other long-term liabilities	1,200			1,197			Other long-term liabilities	1,765		1,507
Total Liabilities	92,679			93,690			Total Liabilities	281,301		196,174
Commitments and Contingencies (Note E)
Commitments and Contingencies (Note F)							Commitments and Contingencies (Note F)
Stockholders' Equity:							Stockholders' Equity:
Preferred stock, par value $.01; 5,000,000 shares authorized; none issued	—			—
Common stock, par value $.01; 30,000,000 shares authorized; 12,256,956 and 12,234,656 and shares issued, respectively	122			122
Preferred stock, par value $0.01; 5,000,000 shares authorized; none issued							Preferred stock, par value $0.01; 5,000,000 shares authorized; none issued	—		—
Common stock, par value $0.01; 30,000,000 shares authorized; 12,666,701 and 12,588,011 shares issued, respectively							Common stock, par value $0.01; 30,000,000 shares authorized; 12,666,701 and 12,588,011 shares issued, respectively	126		126
Additional paid-in capital	54,960			54,329			Additional paid-in capital	69,955		67,439
Retained earnings	301,959			310,598			Retained earnings	286,777		283,638
Treasury stock, 806,018 shares at cost	(24,999		)	(24,999		)	Treasury stock, 806,018 shares at cost	(24,999)		(24,999)
Accumulated other comprehensive loss	(19,068		)	(18,754		)	Accumulated other comprehensive loss	(26,064)		(28,998)
Total Stockholders' Equity	312,974			321,296			Total Stockholders' Equity	305,795		297,206
Total Liabilities and Stockholders' Equity	$	405,653		$	414,986		Total Liabilities and Stockholders' Equity	$	587,096	$	493,380

The accompanying notes are an integral part of these condensed consolidated financial statements.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

(In thousands, except per share data)


	Three months ended December 31,							Three months ended March 31,				Six months ended March 31,
	2017			2016				2023		2022		2023		2022
Revenues	$	90,184		$	110,341		Revenues	$	171,444	$	127,854	$	298,302	$	234,423
Cost of goods sold	79,630			95,342			Cost of goods sold	138,007		108,771		245,401		201,904
Gross profit	10,554			14,999			Gross profit	33,437		19,083		52,901		32,519

Selling, general and administrative expenses	16,215			15,698			Selling, general and administrative expenses	21,820		17,067		38,693		32,969
Research and development expenses	1,658			1,469			Research and development expenses	1,543		1,713		3,044		3,537
Amortization of intangible assets	73			88
Operating loss	(7,392		)	(2,256		)

Operating income (loss)							Operating income (loss)	10,074		303		11,164		(3,987)

Other income	(507		)	(507		)	Other income	—		(279)		—		(279)
Interest expense	51			34
Interest income	(203		)	(42		)
Loss before income taxes	(6,733		)	(1,741		)

Income tax benefit	(1,071		)	(1,441		)
Interest income, net							Interest income, net	(899)		(13)		(1,423)		(16)
Income (loss) before income taxes							Income (loss) before income taxes	10,973		595		12,587		(3,692)
Income tax provision							Income tax provision	2,500		1,812		2,951		371
Net income (loss)							Net income (loss)	$	8,473	$	(1,217)	$	9,636	$	(4,063)

Net loss	$	(5,662	)	$	(300	)

Loss per share:
Earnings (loss) per share:							Earnings (loss) per share:
Basic	$	(0.49	)	$	(0.03	)	Basic	$	0.71	$	(0.10)	$	0.81	$	(0.34)
Diluted	$	(0.49	)	$	(0.03	)	Diluted	$	0.70	$	(0.10)	$	0.80	$	(0.34)

Weighted average shares:							Weighted average shares:
Basic	11,497			11,438			Basic	11,878		11,801		11,869		11,783
Diluted	11,497			11,438			Diluted	12,149		11,801		12,109		11,783

Dividends per share	$	0.26		$	0.26		Dividends per share	$	0.26	$	0.26	$	0.52	$	0.52

The accompanying notes are an integral part of these condensed consolidated financial statements.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited)

(In thousands)

Three months ended December 31,
2017 2016
Net loss $ (5,662 ) $ (300 )
Foreign currency translation adjustments (314 ) (2,611 )
Comprehensive loss $ (5,976 ) $ (2,911 )


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Net income (loss)	$	8,473	$	(1,217)	$	9,636	$	(4,063)
Foreign currency translation adjustments	427		902		2,605		956
Gain on cash flow commodity hedge	111		—		329		—
Comprehensive income (loss)	$	9,011	$	(315)	$	12,570	$	(3,107)

The accompanying notes are an integral part of these condensed consolidated financial statements.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(In thousands)


											Accumulated
				Additional							Other
	Common Stock			Paid-in		Retained		Treasury Stock			Comprehensive
	Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Totals
Balance, September 30, 2022	12,588	$	126	$	67,439	$	283,638	(806)	$	(24,999)	$	(28,998)	$	297,206
Net income	—	—		—		1,162		—	—		—		1,162
Foreign currency translation adjustments	—	—		—		—		—	—		2,178		2,178
Stock-based compensation	53	—		1,307		—		—	—		—		1,307
Shares withheld in lieu of employee tax withholding	—	—		(423)		—		—	—		—		(423)
Dividends	—	—		131		(3,307)		—	—		—		(3,176)
Gain on cash flow commodity hedge	—	—		—		—		—	—		218		218
Balance, December 31, 2022	12,641	$	126	$	68,454	$	281,493	(806)	$	(24,999)	$	(26,602)	$	298,472
Net income	—	—		—		8,473		—	—		—		8,473
Foreign currency translation adjustments	—	—		—		—		—	—		427		427
Stock-based compensation	26	—		1,650		—		—	—		—		1,650
Shares withheld in lieu of employee tax withholding	—	—		(159)		—		—	—		—		(159)

Dividends	—	—		10		(3,189)		—	—		—		(3,179)
Gain on cash flow commodity hedge	—	—		—		—		—	—		111		111
Balance, March 31, 2023	12,667	$	126	$	69,955	$	286,777	(806)	$	(24,999)	$	(26,064)	$	305,795


											Accumulated
				Additional							Other
	Common Stock			Paid-in		Retained		Treasury Stock			Comprehensive
	Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Totals
Balance, September 30, 2021	12,498	$	125	$	63,948	$	282,505	(806)	$	(24,999)	$	(20,356)	$	301,223
Net loss	—	—		—		(2,846)		—	—		—		(2,846)
Foreign currency translation adjustments	—	—		—		—		—	—		54		54
Stock-based compensation	72	1		1,007		—		—	—		—		1,008
Shares withheld in lieu of employee tax withholding	—	—		(660)		—		—	—		—		(660)
Dividends	—	—		69		(3,269)		—	—		—		(3,200)
Balance, December 31, 2021	12,570	$	126	$	64,364	$	276,390	(806)	$	(24,999)	$	(20,302)	$	295,579
Net loss	—	—		—		(1,217)		—	—		—		(1,217)
Foreign currency translation adjustments	—	—		—		—		—	—		902		902
Stock-based compensation	17	—		711		—		—	—		—		711


Dividends	—	—		—		(3,105)		—	—		—		(3,105)
Balance, March 31, 2022	12,587	$	126	$	65,075	$	272,068	(806)	$	(24,999)	$	(19,400)	$	292,870

The accompanying notes are an integral part of these condensed consolidated financial statements.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

Three Months Ended December 31,
2017 2016
Operating Activities:
Net loss $ (5,662 ) $ (300 )
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,162
3,063
Amortization 73
88
Stock-based compensation 1,069
1,009
Bad debt recovery (20 ) (113 )
Deferred income tax benefit (1,292 ) (7 )
Gain on amended supply agreement (507 ) (507 )
Changes in operating assets and liabilities:
Accounts receivable, net (25,102 ) 12,234
Costs and billings in excess of estimated earnings on uncompleted contracts 23,155
2,236
Inventories (88 ) 2,444
Income taxes 853
(1,319 )
Prepaid expenses and other current assets 1,101
554
Accounts payable (4,144 ) (2,085 )
Accrued liabilities (6,673 ) (13,398 )
Other, net 15
(525 )
Net cash provided by (used in) operating activities (14,060 ) 3,374
Investing Activities:
Proceeds from sale of property, plant and equipment 55
—
Purchases of short-term investments (20,712 ) (14,874 )
Maturities of short-term investments 24,425
—
Changes in restricted cash (2,925 ) —
Purchases of property, plant and equipment (1,701 ) (928 )
Net cash used in investing activities (858 ) (15,802 )
Financing Activities:
Payments on industrial development revenue bonds (400 ) (400 )
Shares withheld in lieu of employee tax withholding (438 ) (398 )
Dividends paid (2,977 ) (2,966 )
Net cash used in financing activities (3,815 ) (3,764 )
Net increase (decrease) in cash and cash equivalents (18,733 ) (16,192 )
Effect of exchange rate changes on cash and cash equivalents (39 ) (946 )
Cash and cash equivalents, beginning of period 68,359
97,720
Cash and cash equivalents, end of period $ 49,587
$ 80,582


	Six months ended March 31,
	2023		2022
Operating Activities:
Net income (loss)	$	9,636	$	(4,063)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	4,312		4,831

Stock-based compensation	2,956		1,720
Bad debt expense, net	101		445
Deferred income taxes	(1,783)		(51)

Changes in operating assets and liabilities:
Accounts receivable, net	(63,300)		(12,662)
Contract assets and liabilities, net	123,082		9,888
Inventories	(8,060)		(13,835)
Income taxes	862		31
Prepaid expenses and other current assets	1,026		1,009
Accounts payable	(11,919)		3,372
Accrued liabilities	(3,331)		(5,761)
Other, net	1,932		2,068
Net cash provided by (used in) operating activities	55,514		(13,008)
Investing Activities:
Purchases of short-term investments	(3,695)		(15,090)
Maturities of short-term investments	7,385		7,995

Purchases of property, plant and equipment	(3,356)		(1,116)
Proceeds from sale of property, plant and equipment	12		587

Net cash provided by (used in) investing activities	346		(7,624)
Financing Activities:
Payments on industrial development revenue bonds	—		(400)
Shares withheld in lieu of employee tax withholding	(582)		(660)
Dividends paid	(6,180)		(6,106)
Net cash used in financing activities	(6,762)		(7,166)
Net increase (decrease) in cash and cash equivalents	49,098		(27,798)
Effect of exchange rate changes on cash and cash equivalents	987		(85)
Cash and cash equivalents at beginning of period	101,954		114,314
Cash and cash equivalents at end of period	$	152,039	$	86,431

The accompanying notes are an integral part of these condensed consolidated financial statements.

POWELL INDUSTRIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Unaudited)

A. ~~OVERVIEW AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES~~Overview and Summary of Significant Accounting Policies

Overview

Powell Industries, Inc. (we, us, our, Powell or the Company) ~~was~~is incorporated in the state of ~~Delaware in 2004 as a successor to a Nevada company incorporated in 1968. The Nevada company was the successor to a company~~Delaware. Powell's predecessor companies were founded 76 years ago by William E. Powell in ~~1947, which merged into the Company in 1977.~~1947. Our major subsidiaries, all of which are wholly owned, ~~include:~~include Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, B.V.

We develop, design, manufacture and service custom-engineered ~~products~~equipment and systems ~~for the distribution,~~that (1) distribute, control and ~~monitoring~~monitor the flow of electrical ~~energy. Headquartered~~energy and (2) provide protection to motors, transformers and other electrically powered equipment. We are headquartered in Houston, Texas weand serve the oil and gas ~~refining,~~and petrochemical markets, which include onshore and offshore ~~oil~~production, liquefied natural gas (LNG) facilities and ~~gas production,~~terminals, pipelines, refineries and petrochemical ~~pipeline, terminal, mining and metals,~~plants. Additional markets include electric utility, light rail traction power ~~electric utility,~~as well as mining and metals, pulp and paper and other ~~heavy~~municipal, commercial and other industrial markets.

Basis of Presentation

These unaudited condensed consolidated financial statements include the accounts of Powell and ~~its~~our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

These unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. We believe that these financial statements contain all adjustments necessary so that they are not misleading.

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Powell and its subsidiaries included in Powell’s Annual Report on Form 10-K for the year ended September 30, ~~2017,~~2022, which was filed with the Securities and Exchange Commission (SEC) on December 6, ~~2017.~~2022.

References to Fiscal ~~2018~~2023 and Fiscal ~~2017~~2022 used throughout this report shall mean ~~our~~the current fiscal ~~years~~year ending September 30, 2023 and the prior fiscal year ended September 30, ~~2018 and 2017,~~2022, respectively.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The most significant estimates used in our condensed consolidated financial statements affect revenue recognition and estimated cost recognition ~~for construction~~on our customer contracts, the allowance for ~~doubtful accounts,~~credit losses, provision for excess and obsolete inventory, warranty accruals and income taxes. The amounts recorded for warranties, legal, income taxes, impairment of long-lived assets (when applicable), liquidated damages and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience, forecasts and on various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future ~~profitability.~~profitability because the ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during the periods in which temporary differences become deductible. Estimates routinely change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our prior estimates.

~~New Accounting Standards~~

In May 2014, the Financial Accounting Standards Board (FASB) issued a new standard on revenue recognition that supersedes previously issued revenue recognition guidance. This standard provides a five-step approach to be applied to all contracts with customers and requires expanded disclosures about the nature, amount, timing and uncertainty of revenue (and the related cash flows) arising from customer contracts, significant judgments and changes in judgments used in applying the revenue model and the assets recognized from costs incurred to obtain or fulfill a contract. This standard is effective for fiscal years, and interim

periods within those years, beginning after December 15, 2017, which would be our fiscal year ending September 30, 2019. We plan to use the modified retrospective basis upon adoption. While we are still evaluating the potential impact of this standard on our financial statements, we believe accounting for variable consideration and the number of performance obligations contained in each contract will have the greatest significance. The materiality of this guidance on our financial statements will be determined in large part by the contracts that are in progress as of the adoption date.

In November 2015, the FASB issued an amendment to the topic regarding income taxes which requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in the statement of financial position. Deferred tax liabilities and assets are classified as current or noncurrent based on the classification of the related asset or liability for financial reporting. Deferred tax liabilities and assets that are not related to an asset or liability for financial reporting are classified according to the expected reversal date of the temporary difference. To simplify the presentation of deferred income taxes, the amendments require that deferred income tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We have adopted this topic prospectively in Fiscal 2018 and our statement of financial position at December 31, 2017 reflects this reclassification. We have not retrospectively adjusted prior periods.

In February 2016, the FASB issued a new topic on leases which requires lessees to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. This would be our fiscal year ending September 30, 2020. We are still evaluating the potential impact of this topic on our financial statements.

In November 2016, the FASB issued new standards on the statement of cash flows and restricted cash that change the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. These standards are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, which would be our fiscal year ending September 30, 2019. We have no plans for early adoption. We are still evaluating these new standards, but we do not expect them to have a material impact on our consolidated financial position or results of operations.

In January 2017, the FASB issued new guidance on goodwill impairment intended to simplify the testing for goodwill impairment by the elimination of Step 2 in the determination on whether goodwill should be considered impaired. The annual and/or interim assessments are still required to be completed. This guidance is effective for fiscal years (including interim periods) beginning after December 15, 2019, which would be our fiscal year ending September 30, 2021. The adoption of this guidance is not expected to have a material impact on our consolidated financial position or results of operations.

In May 2017, the FASB issued a new topic on modification accounting with regards to stock based compensation. This new topic clarifies when a change to the terms or conditions of a share-based payment award should be accounted for as a modification. An entity should account for the effects of a modification unless the fair value, vesting conditions and classification, as an equity instrument or a liability instrument, of the modified award are the same before and after a change to the terms or conditions of the share-based payment award. This topic is effective for annual reporting periods beginning after December 15, 2017, which is our fiscal year ending September 30, 2019. We do not expect this topic to have a material impact on our consolidated financial position or results of operations.

B. ~~EARNINGS PER SHARE~~Earnings Per Share

We compute basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock ~~units, as prescribed by the FASB guidance on earnings per share.~~

units.

The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share (in thousands, except per share data):


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Numerator:
Net income (loss)	$	8,473	$	(1,217)	$	9,636	$	(4,063)
Denominator:
Weighted average basic shares	11,878		11,801		11,869		11,783
Dilutive effect of restricted stock units	271		—		240		—
Weighted average diluted shares	12,149		11,801		12,109		11,783
Earnings (loss) per share:
Basic	$	0.71	$	(0.10)	$	0.81	$	(0.34)
Diluted	$	0.70	$	(0.10)	$	0.80	$	(0.34)

Three months ended December 31,
2017 2016
Numerator:
Net loss $ (5,662 ) $ (300 )
Denominator:
Weighted average basic shares 11,497
11,438
Dilutive effect of restricted stock units —
—
Weighted average diluted shares with assumed conversions 11,497
11,438
Net loss per share:
Basic $ (0.49 ) $ (0.03 )
Diluted $ (0.49 ) $ (0.03 )

For each of the ~~quarters~~three and six months ended ~~December~~March 31, ~~2017 and 2016,~~2022, we incurred net losses and therefore all potential common shares were deemed to be anti-dilutive.

C. ~~DETAIL OF SELECTED BALANCE SHEET ACCOUNTS~~

~~Allowance for Doubtful~~Detail of Selected Balance Sheet Accounts

~~Activity in our allowance for doubtful accounts receivable consisted of the following (in thousands):~~

Three months ended December 31,
2017 2016
Balance at beginning of period $ 179
$ 811
Bad debt expense (recovery) (20 ) (113 )
Uncollectible accounts written off, net of recoveries (1 ) (28 )
Change due to foreign currency translation —
(6 )
Balance at end of period $ 158
$ 664

Inventories

The components of inventories are summarized below (in thousands):


	March 31, 2023		September 30, 2022
Raw materials, parts and sub-assemblies, net	$	57,701	$	49,213
Work-in-progress	989		1,202
Total inventories	$	58,690	$	50,415

December 31, 2017 September 30, 2017
Raw materials, parts and subassemblies, net $ 17,701
$ 17,848
Work-in-progress 834
600
Total inventories $ 18,535
$ 18,448

~~Cost and Estimated Earnings on Uncompleted Contracts~~

~~The components of costs and estimated earnings and related amounts billed on uncompleted contracts are summarized below (in thousands):~~

December 31, 2017 September 30, 2017
Costs incurred on uncompleted contracts $ 984,882
$ 987,164
Estimated earnings 311,391
316,970
1,296,273
1,304,134
Less: Billings to date (1,294,017 ) (1,278,746 )
Net underbilled position $ 2,256
$ 25,388
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts $ 38,985
$ 51,554
Billings in excess of costs and estimated earnings on uncompleted contracts (36,729 ) (26,166 )
Net underbilled position $ 2,256
$ 25,388

Accrued Product Warranty

Activity in our product warranty accrual consisted of the following (in thousands):


	Three months ended December 31,							Three months ended March 31,				Six months ended March 31,
	2017			2016				2023		2022		2023		2022
Balance at beginning of period	$	3,174		$	4,639		Balance at beginning of period	$	2,380	$	2,443	$	2,345	$	2,531
Increase to warranty expense	195			370			Increase to warranty expense	1,211		323		1,690		616
Deduction for warranty charges	(478		)	(725		)	Deduction for warranty charges	(882)		(421)		(1,335)		(803)
Change due to foreign currency translation	(1		)	(54		)	Change due to foreign currency translation	2		2		11		3
Balance at end of period	$	2,890		$	4,230		Balance at end of period	$	2,711	$	2,347	$	2,711	$	2,347

D. ~~LONG-TERM DEBT~~Revenue

~~Long-term debt consisted~~Revenue Recognition

Our revenues are primarily generated from the manufacturing of custom-engineered products and systems under long-term fixed-price contracts under which we agree to manufacture various products such as traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control

centers, switches and bus duct systems. These products may be sold separately as an engineered solution but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and the commissioning of these enclosures.

Revenue from these contracts is generally recognized over time utilizing the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the ~~following~~performance obligation. We believe that this method is the most accurate representation of our performance because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts. Contract costs include all direct materials, labor and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs.

We also have contracts to provide field service inspection, installation, commissioning, modification, and repair services, as well as retrofit and retrofill components for existing systems. If the service contract terms give us the right to invoice the customer for an amount that corresponds directly with the value of our performance completed to date (i.e., a service contract in which we bill a fixed amount for each hour of service provided), then we recognize revenue over time in each reporting period corresponding to the amount with which we have the right to invoice. Our performance obligations are satisfied as the work progresses. Revenues from our custom-engineered products and value-added services transferred to customers over time accounted for approximately 93% of total revenues for the three and six months ended March 31, 2023 and 94% of total revenues for the three and six months ended March 31, 2022.

We also have sales orders for spare parts and replacement circuit breakers for switchgear that are obsolete or that are no longer produced by the original manufacturer. Revenues from these sales orders are recognized at the time we fulfill our performance obligation to the customer, which is typically upon shipment and represented approximately 7% of total revenues for the three and six months ended March 31, 2023 and 6% of total revenues for the three and six months ended March 31, 2022.

Additionally, some contracts may contain a cancellation clause that could limit the amount of revenue we are able to recognize over time. In these instances, revenue and costs associated with these contracts are deferred and recognized at a point in time when the performance obligation is fulfilled.

Selling and administrative costs incurred in relation to obtaining a contract are typically expensed as incurred. We periodically utilize a third-party sales agent to obtain a contract and will pay a commission to that agent. We record the full commission liability to the third-party sales agents at the order date, with a corresponding deferred asset. As the project progresses, we record commission expense based on percentage of completion rates that correlate to the project and reduce the deferred asset. Once we have been paid by the customer, we pay the commission and the deferred liability is reduced.

Performance Obligations

A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied. To determine the proper revenue recognition for contracts, we evaluate whether a contract should be accounted for as more than one performance obligation or, less commonly, whether two or more contracts should be combined and accounted for as one performance obligation. This evaluation of performance obligations requires significant judgment. The majority of our contracts have a single performance obligation where multiple engineered products and services are combined into a single custom-engineered solution. Our contracts include a standard one-year assurance warranty. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation, and revenue is deferred and recognized over the warranty period. If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

Remaining unsatisfied performance obligations, which we refer to as backlog, represent the estimated transaction price for goods and services for which we have a material right, but work has not been performed. As of March 31, 2023, we had backlog of $1.0 billion, of which approximately $584.4 million is expected to be recognized as revenue within the next twelve months.Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers. Our backlog does not include service and maintenance-type contracts for which we have the right to invoice as services are performed.

Contract Estimates

Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial

professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the availability of materials, and the effect of any delays on our project performance. We periodically review our job performance, job conditions, estimated profitability and final contract settlements, including our estimate of total costs and make revisions to costs and income in the period in which the revisions are probable and reasonably estimable. We bear the risk of cost overruns in most of our contracts, which may result in reduced profits. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.

For the six months ended March 31, 2023 and 2022, our operating results were positively impacted by $7.4 million and $5.6 million, respectively, as a result of net changes in contract estimates related to projects in progress at the beginning of the respective period. These changes in estimates resulted primarily from favorable project execution and negotiations of variable consideration, discussed below, as well as revenue and reduced costs recognized from project cancellations and other changes in facts and circumstances during these periods. Gross unfavorable changes in contract estimates were immaterial for both the six months ended March 31, 2023 and 2022.

Variable Consideration

It is common for our long-term contracts to contain variable consideration that can either increase or decrease the transaction price. Due to the nature of our contracts, estimating total cost and revenue can be complex and subject to variability due to change orders, back charges, spare parts, early completion bonuses, customer allowances and liquidated damages. We estimate the amount of variable consideration based on the expected value method, which is the sum of the probability-weighted amounts, or the most likely amount method which uses various factors including experience with similar transactions and assessment of our anticipated performance. Variable consideration is included in the transaction price if legally enforceable and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is resolved.

Contract Modifications

Contracts may be modified for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the enforceable rights and obligations under the contract. Most of our contract modifications are for goods and services that are not distinct from the existing performance obligation. Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation.

Contract Balances

The timing of revenue recognition, billings and cash collections affects accounts receivable, contract assets and contract liabilities in our Condensed Consolidated Balance Sheets.

Contract assets are recorded when revenues are recognized in excess of amounts billed for fixed-price contracts as determined by the billing milestone schedule. Contract assets are transferred to accounts receivable when billing milestones have been met, or we have an unconditional right to payment.

Contract liabilities typically represent advance payments from contractual billing milestones and billings in excess of revenue recognized. It is unusual to have advanced milestone payments with a term greater than one year, which could represent a financing component on the contract.

Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period and are generally classified as current.

Contract assets and liabilities as of March 31, 2023 and September 30, 2022 are summarized below (in thousands):


	March 31, 2023		September 30, 2022
Contract assets	$	63,560	$	88,351
Contract liabilities	(178,217)		(79,857)
Net contract asset (liability)	$	(114,657)	$	8,494

Our net contract billing position improved to a net liability at March 31, 2023 from a net asset position at September 30, 2022 primarily due to favorable contract billing milestones. We typically allocate a significant percentage of the progress billing to the early stages of the contract. These favorable billing milestones along with our increase in project backlog are driving the

December 31, 2017 September 30, 2017
Industrial development revenue bonds $ 1,600
$ 2,000
Less current portion (400 ) (400 )
Total long-term debt $ 1,200
$ 1,600
increase in the net contract liability at March 31, 2023. To determine the amount of revenue recognized during the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. During the six months ended March 31, 2023, we recognized revenue of approximately $58.7 million that was related to contract liabilities outstanding at September 30, 2022.

~~U.S.~~The timing of our invoice process is typically dependent on the completion of certain milestones and contract terms and subject to agreement by our customer. Payment is typically expected within 30 days of invoice. Any uncollected invoiced amounts for our performance obligations recognized over time, including contract retentions, are recorded as accounts receivable in the Condensed Consolidated Balance Sheets. Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on our experience in recent years, the majority of these retainage balances are expected to be collected within approximately twelve months. As of March 31, 2023 and September 30, 2022, accounts receivable included retention amounts of $6.6 million and $6.9 million, respectively. Of the retained amount at March 31, 2023, $6.4 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining $0.2 million is recorded in other assets.

Disaggregation of Revenue

The following tables present our disaggregated revenue by geographic destination and market sector for the three and six months ended March 31, 2023 and 2022 (in thousands):


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
United States	$	134,161	$	86,992	$	234,273	$	169,137
Canada	21,995		22,053		40,491		37,178
Europe, Middle East and Africa	11,957		15,551		18,516		23,381
Asia/Pacific	1,788		1,646		2,564		2,590
Mexico, Central and South America	1,543		1,612		2,458		2,137
Total revenues by geographic destination	$	171,444	$	127,854	$	298,302	$	234,423


	Three months ended March 31,				Six months ended March 31,
	2023		2022		2023		2022
Oil and gas (excludes petrochemical)	$	62,597	$	53,634	$	106,107	$	96,655
Petrochemical	25,887		18,853		48,377		36,081
Electric utility	42,668		30,374		71,075		51,907
Traction power	7,317		10,054		14,389		21,426
Commercial and other industrial	22,270		5,785		39,320		15,618
All others	10,705		9,154		19,034		12,736
Total revenues by market sector	$	171,444	$	127,854	$	298,302	$	234,423

E. Long-Term Debt

U.S Revolver

~~We have~~On March 31, 2023, we entered into a ~~$75.0 million~~second amendment (the Second Amendment) to our credit agreement with Bank of America, N.A. (as amended, the U.S. Revolver). The Second Amendment increased the revolving credit facility ~~(U.S. Revolver)~~extended to ~~provide working capital support~~us under the U.S. Revolver, which is available for both borrowings and letters of credit and expires September 27, 2024, from $75.0 million to $125.0 million. As amended by the Second Amendment, the U.S. Revolver states that the lesser of $50 million or 50% of readily and available cash may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness, which ~~expires on June 27, 2022. The amount available~~is a component of the consolidated net leverage ratio. We have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio. As of March 31, 2023, there were no amounts borrowed under the U.S. Revolver, ~~at December 31, 2017 was reduced by $27.0 million for our outstanding~~and letters of ~~credit.~~credit outstanding were $44.8 million. There ~~were no loans outstanding~~was $80.2 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of ~~December~~March 31, ~~2017. Amounts available under the U.S. Revolver were $48.0 million at December 31, 2017.~~2023.

~~Per the terms of the U.S. Revolver, we~~

We are required to maintain ~~a cash balance in a pledged cash collateral account equal to 102% of the outstanding amount of any loans and letter of credit obligations until we meet~~ certain financial ~~ratios. As~~covenants, the most significant of ~~December 31, 2017,~~which are a consolidated net leverage ratio less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0. Our most restrictive covenant, the ~~balance~~consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness. An increase in ~~the pledged account was $27.8 million. The cash collateral associated with the outstanding~~indebtedness, which includes letters of credit, ~~that are due~~or a decrease in EBITDAS could restrict our ability to ~~expire beyond twelve months has been classified as non-current restricted cash on the balance sheet as~~issue letters of ~~December 31, 2017.~~

~~The interest rate for amounts outstanding~~credit or borrow under the U.S. Revolver. Additionally, we must maintain a consolidated cash balance of $50 million at all times, which can be deducted from the letters of credit outstanding as noted above. The U.S. Revolver also contains a "material adverse effect" clause which is a ~~floating~~material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements. As of March 31, 2023, we were in compliance with all of the financial covenants of the U.S. Revolver.

The U.S. Revolver allows the Company to elect that any borrowing under the facility bears an interest rate based ~~upon~~on either the ~~higher~~base rate or the eurocurrency rate, in each case, plus the applicable rate. The base rate is generally the highest of (a) the ~~Federal Funds Rate~~federal funds rate plus ~~0.5%~~0.50%, (b) the ~~bank’s~~Bank of America prime rate or (c) the ~~Eurocurrency~~Bloomberg Short-Term Bank Yield Index (BSBY) rate plus 1.00%. ~~Once the~~The applicable rate is ~~determined,~~generally a ~~margin ranging up~~range from 0% to ~~1.25% is added to~~2% depending on the ~~applicable rate.~~type of loan and the Company's consolidated net leverage ratio.

The U.S. Revolver is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 65% of the voting capital stock of each non-domestic subsidiary. The U.S. Revolver provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the U.S. Revolver) occurs and is continuing, on the terms and subject to the conditions set forth in the U.S. Revolver, amounts and letters of credit outstanding under the U.S. Revolver

may be accelerated and may become immediately due and payable. It also contains financial covenants defining various financial measures and the levels of these measures with which we must comply, as well as a “material adverse change” clause. A “material adverse change” is defined as a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements. As of December 31, 2017, we were in compliance with all of the financial covenants of the U.S. Revolver.

Industrial Development Revenue Bonds

We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds)~~. These Bonds were issued by the Illinois Development Finance Authority and were used~~ for the completion of our Northlake, Illinois facility. ~~Pursuant to the Bond issuance, a reimbursement agreement between us~~The Bonds matured on October 1, 2021 and ~~a major domestic bank required an issuance by the bank of an irrevocable direct-pay letter of credit (Bond LC), as collateral, to the Bonds’ trustee to guarantee~~our final payment of the Bonds’ principal and interest when due. The Bond LC is subject to both early termination and extension provisions customary to such agreements, as well as various covenants, for which we were in compliance at December 31, 2017. While the Bonds mature in 2021, the reimbursement agreement requires annual redemptions of $0.4 million ~~that commenced on October 25, 2002. A sinking fund is used for the redemption of the Bonds. The Bonds bear interest at a floating rate determined weekly by the Bonds’ remarketing agent, which~~ was ~~the underwriter for the Bonds and is an affiliate of the bank. This interest rate was 1.90% as of December 31, 2017.~~made.

~~E. COMMITMENTS AND CONTINGENCIES~~F. Commitments and Contingencies

Letters of Credit, ~~Surety Bonds and~~ Bank Guarantees and Bonds

Certain customers require us to post letters of credit, bank guarantees or surety ~~bonds which~~bonds. These security instruments assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or bank guarantee, or performance by the surety under a bond. To date, there have been no significant ~~expenses~~draws or claims related to ~~either letters of credit or surety bonds~~security instruments for the periods reported. We were contingently liable for letters of credit of ~~$27.0~~$44.8 million as of ~~December~~March 31, ~~2017.~~2023. We also had surety bonds totaling ~~$217.0~~$294.2 million that were outstanding, with additional bonding capacity of ~~$533.0~~$305.8 million available, at ~~December~~March 31, ~~2017.~~2023. We have strong surety relationships; however, a change in market conditions or the sureties' assessment of our financial position could cause the sureties to require cash collateralization for undischarged liabilities under the bonds.

~~Additionally, we~~We have a ~~$6.7~~$9.9 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international ~~bank. This Facility Agreement~~bank that provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At ~~December~~March 31, ~~2017,~~2023, we had outstanding guarantees totaling ~~$3.9 million under this Facility Agreement and amounts available under this Facility Agreement were $2.8~~$7.7 million. ~~This facility expires in May 2018.~~ The Facility Agreement provides for ~~financial covenants and~~ customary events of default and carries cross-default provisions with our ~~U.S. Revolver.~~Second Amendment. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and declared immediately due and payable. Additionally, we are required to maintain cash collateral for guarantees greater than two years. As of ~~December~~March 31, ~~2017,~~2023, we were in compliance with all of the financial covenants of the Facility Agreement.

Litigation

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes, and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

~~Liquidated Damages~~

Certain of our customer contracts have schedule and performance obligation clauses that, if we fail to meet them, could require us to pay liquidated damages. Each individual contract defines the conditions under which the customer may make a claim against us. As of December 31, 2017, our exposure to possible liquidated damages was $2.4 million, of which approximately $1.5 million is probable. Based on our actual or projected failure to meet these various contractual commitments, $1.4 million has been recorded as a reduction to revenue. We will attempt to obtain change orders, contract extensions or accelerate project completion which may resolve the potential for any unaccrued liquidated damage. Should we fail to achieve relief on some or all of these contractual obligations, we could be required to pay additional liquidated damages, which could negatively impact our future operating results.

~~F. STOCK-BASED COMPENSATION~~

G. Stock-Based Compensation

Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017~~2022 for a full description of our existing stock-based compensation plans.

Restricted Stock Units

On February 15, 2023, at the 2023 Annual Meeting of Stockholders, our stockholders approved an amendment to the Company's 2014 Equity Incentive Plan (the 2014 Plan) that extended the term of the 2014 Plan by five years and increased the number of shares of common stock that may be issued under the 2014 Plan by 600,000 shares for a total of 1,350,000 shares.

We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the ~~closing~~ price of our common stock as reported on the NASDAQ Global Market on the grant dates. ~~The typical annual grant vests~~Typically, these grants vest over a three-year period from the date of ~~issuance. Sixty percent~~issuance and are a blend of ~~those grants are~~ time-based and ~~vest~~performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The ~~remaining forty percent of the grant will be earned~~performance-based shares vest based on the three-year earnings performance of the Company following the grant date. At ~~December~~March 31, ~~2017,~~2023, there were ~~206,584~~295,417 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon ~~vesting; additionally,~~vesting which are accrued quarterly. Additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.

Total RSU activity (number of shares) for the ~~three~~six months ended ~~December~~March 31, ~~2017~~2023 is summarized below:


						Number of Restricted Stock Units	Weighted Average Grant Value Per Share
	Number of Restricted Stock Units		Weighted Average Fair Value Per Share
Outstanding at September 30, 2017	177,737		$	37.00
Outstanding at September 30, 2022					Outstanding at September 30, 2022	239,862	$	26.11
Granted	86,500		29.88		Granted	147,100	21.26
Vested	(34,853	)	35.64		Vested	(76,834)	29.42
Forfeited/canceled	(22,800	)	41.88		Forfeited/canceled	(14,711)	38.58
Outstanding at December 31, 2017	206,584		$	33.71
Outstanding at March 31, 2023					Outstanding at March 31, 2023	295,417	$	22.85

During the ~~three~~six months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, we recorded compensation expense of ~~$1.0~~$2.5 million and ~~$0.9~~$1.4 million, respectively, related to the RSUs.

Restricted Stock

Each non-employee director receives ~~2,000~~2,400 restricted shares of the Company’s common stock annually. Fifty-percent of the restricted stock granted to each of our non-employee directors vests immediately, while the remaining fifty-percent ~~will vest~~vests on the ~~first~~ anniversary of the grant date. Compensation expense is recognized immediately for the first fifty-percent of the restricted stock granted, while compensation expense for the remaining fifty-percent is recognized over the remaining vesting ~~period based on~~period. In February 2023, 16,800 shares of restricted stock were issued to our non-employee directors under the 2014 Non-Employee Director Equity Incentive Plan, as amended, at a price of $43.22 per ~~share on the grant date.~~share. During the ~~first quarter of Fiscal 2017 and Fiscal 2016, there were no restricted shares granted.~~

~~During the three~~six months ended ~~December~~March 31, ~~2017~~2023 and ~~2016,~~2022, we recorded compensation expense of ~~$0.1~~less than $0.5 million and $0.3 million, respectively, related to restricted stock.

~~G. FAIR VALUE MEASUREMENTS~~H. Fair Value Measurements

We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit ~~price”~~price,” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established which identifies and prioritizes three levels of inputs to be used in measuring fair value.

The three levels of the fair value hierarchy are as follows:

Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, ~~including:~~including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of ~~December~~March 31, ~~2017~~2023 (in thousands):


	Fair Value Measurements at December 31, 2017									Fair Value Measurements at March 31, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at December 31, 2017			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at March 31, 2023
Assets:									Assets:
Cash and cash equivalents	$	49,587	$	—	$	—	$	49,587	Cash and cash equivalents	$	152,039	$	—	$	—	$	152,039
Short-term investments	23,101		—		—		23,101		Short-term investments	11,085		—		—		11,085
Restricted cash	27,776		—		—		27,776
Deferred compensation	—		6,641		—		6,641

Other assets									Other assets	—		8,404		—		8,404
Liabilities:									Liabilities:
Deferred compensation	—		5,322		—		5,322		Deferred compensation	—		9,098		—		9,098

The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, ~~2017~~2022 (in thousands):


	Fair Value Measurements at September 30, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at September 30, 2022
Assets:
Cash and cash equivalents	$	101,954	$	—	$	—	$	101,954
Short-term investments	14,554		—		—		14,554

Other assets	—		7,730		—		7,730
Liabilities:
Deferred compensation	—		7,714		—		7,714

Fair Value Measurements at September 30, 2017
Quoted Prices in
Active Markets for
Identical Assets
(Level 1) Significant Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Fair Value at
September 30,
2017
Assets:
Cash and cash equivalents $ 68,359
$ —
$ —
$ 68,359
Short-term investments 26,829
26,829
Restricted cash 24,851
24,851
Deferred compensation —
6,442
—
6,442
Liabilities:
Deferred compensation —
4,991
—
4,991

Fair value guidance requires certain fair value disclosures be presented in both interim and annual reports. The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below.

Cash and cash equivalents

– Cash and cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets.

Short-term Investments – Short-term investments include time deposits with original maturities of three months or more.

~~Restricted Cash~~ ~~– Restricted cash represents a pledged cash collateral balance which is required under our U.S. Revolver~~Other Assets and ~~is held in an interest-bearing savings account. See Note D for further discussion on restricted cash.~~

Deferred Compensation – We hold investments in an irrevocable Rabbi Trust for our deferred compensation plan. ~~These~~The assets ~~include both~~are primarily related to company-owned life insurance policies and are included in other assets in the accompanying Condensed Consolidated Balance Sheets. Because the mutual ~~fund investments~~funds and company-owned life insurance ~~policies. Under~~policies are combined in the plan, they are categorized as Level 2 in the fair value measurement hierarchy. The deferred compensation liability represents the investment options that the plan participants ~~designate investment options~~have designated to serve as the basis for measurement of the notional value of their accounts. ~~The mutual funds and company-owned life insurance policies are combined in~~Because the deferred compensation liability is intended to offset the plan ~~and are therefore~~assets, it is also categorized as Level 2 in the fair value measurement hierarchy.

There were no transfers between levels within the fair value measurement hierarchy during the quarter ended March 31, 2023.

I. Leases

Our leases consist primarily of office and manufacturing space and construction equipment. All of our future lease obligations are related to non-cancelable operating leases. The most significant portion of our lease portfolio relates to leases of office and manufacturing facilities in Canada that we no longer occupy. We currently sublease the majority of these Canadian facilities. The following table provides a summary of lease cost components for the three and six months ended ~~December~~March 31, ~~2017.~~2023 and 2022, respectively (in thousands):


	Three months ended March 31,				Six months ended March 31,
Lease Cost	2023		2022		2023		2022
Operating lease cost	$	378	$	573	$	755	$	1,143
Less: sublease income	(163)		(173)		(324)		(347)
Variable lease cost(1)	88		117		195		258
Short-term lease cost(2)	430		579		817		852
Total lease cost	$	733	$	1,096	$	1,443	$	1,906

~~H. INCOME TAXES~~(1) Variable lease cost represents common area maintenance charges related to our Canadian office space lease.

(2) Short-term lease cost includes leases and rentals with initial terms of one year or less.

We recognize operating lease assets and operating lease liabilities representing the present value of the remaining lease payments for leases with initial terms greater than twelve months. Leases with initial terms of twelve months or less are not recorded in our Condensed Consolidated Balance Sheets. As of both March 31, 2023 and September 30, 2022, our operating lease assets have been reduced by a lease accrual of $0.1 million related to certain unused facility leases in Canada. The following table provides a summary of the operating lease assets and operating lease liabilities included in our Condensed Consolidated Balance Sheets as of March 31, 2023 and September 30, 2022, respectively (in thousands):


Operating Leases	March 31, 2023		September 30, 2022
Assets:
Operating lease assets, net	$	1,665	$	2,179
Liabilities:
Current operating lease liabilities	989		1,777
Long-term operating lease liabilities	731		545
Total lease liabilities	$	1,720	$	2,322

The following table provides the maturities of our operating lease liabilities as of March 31, 2023 (in thousands):


	Operating Leases
Remainder of 2023	$	756
2024	502
2025	233
2026	144
2027	131
Thereafter	18
Total future minimum lease payments	$	1,784
Less: present value discount (imputed interest)	(64)
Present value of lease liabilities	$	1,720

The weighted average discount rate as of March 31, 2023 was 3.5%. The weighted average remaining lease term was 2.35 years at March 31, 2023.

J. Income Taxes

The calculation of the effective tax rate is as follows (in thousands):


	Three months ended March 31,						Six months ended March 31,
	2023			2022			2023			2022
Income (loss) before income taxes	$	10,973		$	595		$	12,587		$	(3,692)

Income tax provision	2,500			1,812			2,951			371

Net income (loss)	$	8,473		$	(1,217)		$	9,636		$	(4,063)

Effective tax rate	23		%	305		%	23		%	(10)		%

Three months ended December 31,
2017 2016
Loss before income taxes $ (6,733 ) $ (1,741 )

Income tax benefit (1,071 ) (1,441 )

Net loss $ (5,662 ) $ (300 )

Effective tax rate 16 % 83 %

~~On December 22, 2017, the U.S. Tax Cuts and Jobs Act (the Act) was signed into law. The Act lowers the corporate~~Our income tax provision reflects an effective tax rate on pre-tax income of 23% for ~~C corporations from 35%~~both the three and six months ended March 31, 2023 compared to ~~21% effective January 1, 2018. As a result, the~~an income tax provision that reflects an effective tax rate on pre-tax income of 305% for the three months ended ~~December~~March 31, 2017 represents a reduced blended U.S. tax rate of 24.5%, but was partially offset by deferred tax expense of $0.7 million due to the re-measurement of our U.S. deferred tax assets, which are not expected to be realized prior to the end of Fiscal 2018. The final impact of the Act may differ from our estimates based on changes in interpretations or assumptions we make, as well as the issuance of additional guidance. Additionally, our effective tax rate2022 and negative 10% for the ~~three~~six months ended ~~December~~March 31, ~~2017 was reduced by a $0.2 million foreign tax loss which is reserved with a valuation allowance.~~

2022. The effective tax rate for the three and six months ended ~~December~~March 31, ~~2016~~2023 approximated the U.S. federal statutory rate. The favorable impacts of the estimated Research and Development Tax Credit (R&D Tax Credit) and the projected utilization of net operating loss carryforwards in the UK that have been fully reserved with a valuation allowance were offset by state income tax expense, certain nondeductible expenses and an income inclusion related to U.S. global intangible income.

For the three and six months ended March 31, 2022, the effective tax rate was ~~favorably~~largely impacted by the ~~lower tax rate~~change in the ~~United Kingdom, the~~annual estimated relative amounts of ~~income/loss~~income (loss) recognized in the various tax jurisdictions as well as the impacts of accounting for income taxes in interim reporting periods. During interim reporting periods, the provision for income taxes is calculated by applying an estimated annual effective tax rate to year-to-date ordinary pre-tax income (loss).As a result, a significant variation in the customary relationship between income tax expense and pre-tax income may occur.Due to the estimated R&D Tax Credit as well as the projected utilization of net operating loss carryforwards in Canada that ~~are~~were fully reserved with a valuation ~~allowance. We also completed~~allowance, we projected an ~~IRS audit during~~income tax benefit for the ~~three months~~full fiscal year ended ~~December 2016,~~September 30, 2022, which ~~favorably impacted the~~resulted in a negative effective tax rate.When this annual effective tax rate ~~due~~was applied to the ~~release of~~year-to-date loss, a ~~$0.3 million FIN 48 reserve relating to~~tax provision resulted for the ~~Research~~three and ~~Development Tax Credit.~~six months ended March 31, 2022.

~~I. SUBSEQUENT EVENTS~~K. Subsequent Events

Quarterly Dividend Declared

On ~~February 5, 2018,~~May 2, 2023, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of ~~$0.26~~$0.2625 per share. The dividend is payable on ~~March 21, 2018~~June 14, 2023 to shareholders of record at the close of business on ~~February 21, 2018.~~May 17, 2023.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

We are including the following discussion to inform our existing and potential shareholders generally of some of the risks and uncertainties that can affect our Company and to take advantage of the “safe harbor” protection for forward-looking statements that applicable federal securities law affords.

From time to time, our management or persons acting on our behalf may make forward-looking statements to inform existing and potential shareholders about our Company. These statements may include projections and estimates concerning the timing and success of specific projects and our future backlog, revenues, income, acquisitions, liquidity and capital spending. Forward-looking statements include information concerning future results of operations and financial condition. Statements that contain words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “will” or similar expressions may be forward-looking statements. In addition, sometimes we will specifically describe a statement as being a forward-looking statement and refer to this cautionary statement.

In addition, various statements in this Quarterly Report on Form 10-Q, including those that express a belief, expectation or intention, as well as those that are not statements of historical fact, are forward-looking statements. These forward-looking statements speak only as of the date of this report; we disclaim any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following:

Risk Factors Related to our Business and Industry

•Our business is ~~largely dependent on customers in~~subject to the ~~oil and gas~~cyclical nature of the end markets ~~and~~that we ~~are adversely impacted by extended periods of low oil or gas prices, which decrease our customers' spending, the demand for our products and services and the prices we are able to charge.~~serve. This has had, and may continue to have, an adverse effect on our future operating results.

~~Economic~~•Our industry is highly competitive.

•Technological innovations may make existing products and production methods obsolete.

•Unforeseen difficulties with expansions, relocations, or consolidations of existing facilities could adversely affect our operations.

•Quality problems with our products could harm our reputation and erode our competitive position.

•Growth and product diversification through strategic acquisitions involve a number of risks.

•Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees.

•We are exposed to risks relating to the use of subcontractors.

•Misconduct by our employees or subcontractors, or a failure to comply with laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions.

•Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.

•Catastrophic events, including natural disasters, health epidemics (including the COVID-19 pandemic and any new variants), acts of war and terrorism, among others, could disrupt our business.

Risk Factors Related to our Financial Condition and Markets

•Global economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.

•Our backlog is subject to unexpected adjustments, cancellations and ~~cancellations~~scope reductions and, therefore, may not be a reliable indicator of our future earnings.

~~The use of percentage-of-completion accounting on~~•Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations.

~~The majority~~•Many of our contracts contain performance obligations that may subject us to penalties or additional liabilities.

•Fluctuations in the price and supply of materials used to manufacture our products may reduce our profits and could adversely impact our ability to meet commitments to our customers.

~~Our industry is highly competitive.~~•Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances, may be necessary for us to successfully bid on and obtain certain contracts.

~~Our operations~~

•Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement could adversely impact our business.

•We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks.

•A significant portion of our revenues may be ~~adversely impacted by the effects~~concentrated among a small number of ~~government regulations.~~customers.

~~Changes in tax laws and regulations~~•We carry insurance against many potential liabilities, but our management of risk may ~~change our effective tax rate and could have a material effect on our financial results.~~leave us exposed to unidentified or unanticipated risks.

•Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations.

~~The departure of key personnel~~•Failures or weaknesses in our internal controls over financial reporting could ~~disrupt~~adversely affect our ~~business.~~

~~Our business requires skilled labor and we may be unable~~ability to ~~attract and retain qualified employees.~~

~~We are exposed to risks relating to the use of subcontractors~~report on ~~some of our projects.~~

~~Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken~~ our financial ~~condition.~~condition and results of operations accurately and/or on a timely basis.

~~Quality problems with our products could harm our reputation and erode our competitive position.~~

•A failure in our business systems or cyber security attacks on any of our facilities, or those of third parties, could adversely affect our business and our internal controls.

~~We carry insurance against many potential liabilities, but~~Risk Factors Related to our ~~management~~Common Stock

•Our stock price could decline or fluctuate significantly due to unforeseen circumstances which may be outside of ~~risk~~our control. These fluctuations may ~~leave us exposed~~cause our stockholders to ~~unidentified~~incur losses.

•There can be no assurance that we will declare or ~~unanticipated risks.~~pay future dividends on our common stock.

Risk Factors Related to Legal and Regulatory Matters

•Our operations could be adversely impacted by the effects of government regulations.

•Changes in and compliance with environmental laws and regulations, including those regarding climate change, could adversely impact our financial results.

~~Technological innovations by competitors may make existing products and production methods obsolete.~~

~~Catastrophic events could disrupt our business.~~

~~Unforeseen difficulties with expansions, relocations or consolidations of existing facilities could adversely affect our operations.~~

~~Growth and product diversification through strategic acquisitions involves a number of risks.~~

•Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult to change management.

~~Our stock price could decline or fluctuate significantly due to unforeseen circumstances. These fluctuations may cause our stockholders to incur losses.~~

~~Obtaining surety bonds, letters of credit, bank guarantees, or~~•Significant developments arising from tariffs and other ~~financial assurances, may be necessary for us to successfully bid on and obtain certain contracts.~~

~~Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement~~economic proposals could adversely impact our business.

~~Failures or weaknesses~~General Risk Factors

•Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition.

•Changes in tax laws and regulations may change our ~~internal controls over financial reporting~~effective tax rate and could ~~adversely affect our ability to report~~have a material effect on our financial ~~condition and results~~results.

•The departure of ~~operations accurately and/or on a timely basis.~~key personnel could disrupt our business.

We believe the items we have outlined above are important factors that could cause estimates included in our financial statements ~~to differ materially from actual results~~ and those expressed in a forward-looking statement made in this report or elsewhere by us or on our ~~behalf.~~behalf to differ materially from actual results. We have discussed these factors in more detail in our Annual Report on Form 10-K for the year ended September 30, ~~2017.~~2022. These factors are not necessarily all of the factors that could affect us. Unpredictable or unanticipated factors we have not discussed in this report could also have material adverse effects on actual results. We do not intend to update our description of important factors each time a potential important factor arises, except as required by applicable securities laws and regulations. We advise our shareholders that they should (1) be aware that factors not referred to above could affect the accuracy of our forward-looking statements and (2) use caution when considering our forward-looking statements.

Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the accompanying condensed consolidated financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q and with our Annual Report on Form 10-K for the year ended September 30, ~~2017~~2022, which was filed with the Securities and Exchange Commission (SEC) on December 6, ~~2017~~2022 and is available on the SEC’s website at www.sec.gov.

Overview

We develop, design, manufacture and service custom-engineered equipment and systems ~~for the distribution,~~which (1) distribute, control and ~~monitoring~~monitor the flow of electrical ~~energy. Headquartered~~energy and (2) provide protection to motors, transformers and other electrically powered equipment. We are headquartered in Houston, Texas, weand serve the oil and gas ~~refining,~~and petrochemical markets, which include onshore and offshore ~~oil~~production, liquefied natural gas (LNG) facilities and ~~gas production,~~terminals, pipelines, refineries and petrochemical ~~pipeline, terminal, mining~~plants. Additional markets include electric utility and ~~metals,~~ light rail traction power ~~electric utility,~~as well as mining and metals, pulp and paper and other ~~heavy~~municipal, commercial and other industrial markets. Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting, which precludes us from providing detailed price and volume information.Our backlog includes various projects that typically take a number of months to produce.

The markets in which we participate are ~~capital intensive~~capital-intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes that affect the manner in which our customers proceed with capital investments. Our customers analyze various factors, including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to ~~the~~ customer requirements, and projects typically take a number of months to produce. Schedules may change during the course of any particular project, and our operating results can, therefore, be impacted by factors outside of our control.

~~Due~~Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the ~~significant decline in oil and gas prices from peak 2014 levels, many~~level of capital expenditures of our end-user customers ~~have reduced their capital budgets and cut costs, and in certain instances have delayed or cancelled projects that we were pursuing. As a result,~~as well as prevailing global economic conditions.

One element of our ~~revenues and~~strategic focus is to strengthen our project ~~backlog have declined, and may continue to decline, which may further negatively impact our operations. In response to our reduced project backlog and the challenging market outlook in~~portfolio beyond our core oil, gas and petrochemical end market sectors. Over the past year these efforts have contributed to a record backlog of projects coming into Fiscal 2023. There has been an increase in the planning and capital funding within North America on LNG and related facilities as the market responds to the increased international demand for LNG and gas to chemical processes utilizing low cost gas feedstocks. As a result, the business has been awarded a number of large contracts that have had a positive impact on our backlog. Additionally, diversification efforts outside of our core oil, gas and petrochemical end markets ~~we took steps~~have resulted in an increase in backlog across the utility and commercial and other industrial sectors as well.

Various factors resulting in global economic uncertainty negatively impacted our results over the past two years. Uncertainty and demand disruptions resulted in considerable volatility across commodity markets. We continue to experience supply chain disruptions driven predominately by availability and cost volatility across our raw materials, components and labor force. All of these factors contributed to the lower margins realized in Fiscal ~~2016~~2022 relative to prior oil and ~~2017~~gas cycles. As we address supply chain disruptions, we continue to ~~reduce~~work with our ~~overall~~suppliers of key components and commodities to meet our customer commitments. Additionally, we have adjusted our pricing models with our customers in response to the increased cost ~~structure and better align our costs with future production requirements.~~environment.

Results of Operations

Quarter Ended ~~December~~March 31, ~~2017~~2023 Compared to the Quarter Ended ~~December~~March 31, ~~2016~~2022 (Unaudited)

Revenue and Gross Profit

Revenues ~~decreased~~increased by ~~18%~~34%, or ~~$20.2~~$43.6 million, to ~~$90.2~~$171.4 million in the ~~first~~second quarter of Fiscal ~~2018, compared~~2023, primarily driven by the increase in project backlog. Domestic revenues increased by 54%, or $47.2 million, to $134.2 million in the ~~first~~second quarter of Fiscal ~~2017, primarily due to the continued decrease~~2023. Included in our domestic oil and gas sector revenues is the large domestic industrial project ~~backlog as we complete existing projects and continue~~awarded in Fiscal 2020, which accounted for approximately 8% of our consolidated revenues for the second quarter of Fiscal 2023 compared to ~~see lower demand~~16% in the same period in the prior year. International revenues decreased by 9%, or $3.6 million, to $37.2 million in the second quarter of Fiscal 2023. Our international revenues include both revenues generated from our ~~customers in~~international facilities as well as revenues from export projects generated at our domestic facilities.

Revenue from our core oil and gas ~~and petrochemical markets. Domestic revenues decreased~~markets (excluding petrochemical) increased by ~~30%~~17%, or ~~$25.6~~$9.0 million, to ~~$60.1~~$62.6 million in the ~~first~~second quarter of Fiscal ~~2018, compared~~2023, while petrochemical revenue increased by 37%, or $7.0 million, to $25.9 million in the ~~first~~second quarter of Fiscal ~~2017, and international revenues~~2023. Revenue from our utility markets increased by ~~22%~~40%, or ~~$5.4~~$12.3 million, to ~~$30.1~~$42.7 million in the ~~first~~second quarter of Fiscal ~~2018, compared~~2023. Commercial and other industrial market revenue increased by 285%, or $16.5 million, to $22.2 million, driven by an increase in traditionally non-core markets such as data centers, university projects and other miscellaneous applications. Revenue from all other markets combined increased by 17%, or $1.6 million, to $10.7 million in the ~~first~~second quarter of Fiscal ~~2017. The reduction~~2023. These increases in ~~domestic revenues year over year was~~revenue were driven by ~~the decline in~~improved market conditions and our ~~project backlog mentioned above. However, short-term, high demand remediation efforts following Hurricane Harvey resulted in approximately $7 million of revenue which partially offset the~~strategic effort to diversify our business. Revenue from our traction market ~~challenges discussed above. Revenues from commercial and industrial customers~~ decreased by ~~16%~~27%, or ~~$11.9~~$2.7 million, to ~~$60.8~~$7.3 million in the ~~first~~second quarter of Fiscal ~~2018, compared~~2023.

Gross profit increased by 75%, or $14.4 million, to $33.4 million for the ~~first~~second quarter of Fiscal 2017, primarily due to lower demand in our core oil, gas and petrochemical markets. Revenues from public and private utilities increased by 53%, or $8.7 million, to $25.3 million in the first quarter of Fiscal 2018, compared to the first quarter of Fiscal 2017. Revenues from municipal and transit projects decreased by 80%, or $17.0 million, to $4.1 million in the first quarter of Fiscal 2018, compared to the first quarter of Fiscal 2017. The increase in public and private utilities and the decrease in municipal and transit revenues were primarily due to the timing of projects.

~~Gross profit for the first quarter of Fiscal 2018 decreased by 30%, or $4.4 million, to $10.6 million, compared to the first quarter of Fiscal 2017.~~2023. Gross profit as a percentage of revenues ~~decreased~~increased to ~~12%~~20% in the ~~first~~second quarter of Fiscal ~~2018,~~2023, compared to ~~14%~~15% in the ~~first~~second quarter of Fiscal ~~2017. Gross~~2022. The increase in gross profit was directly attributable to volume leverage and ~~margins continued to be negatively impacted by our reduced volume resulting in under absorption~~factory efficiencies as a result of ~~our manufacturing facility costs and a shift in project mix to smaller projects. This decline~~the increase in volume, ~~and margins is primarily due~~project execution, as well as effectively managing inflationary pressures while maintaining pricing models to the decline in our project backlogs at the beginning of the respective periods resulting from depressed market conditions and competitive pricing pressures primarily in our core oil, gas and petrochemical markets. Gross profit and margins were also negatively impacted by costs incurred on an oil and gas project for which change orders have not been finalized.correspond to current cost levels.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 3%28%, or ~~$0.5~~$4.8 million, to ~~$16.2~~$21.8 million ~~during~~in the ~~first~~second quarter of Fiscal ~~2018, compared to the first quarter of Fiscal 2017~~2023, primarily due to ~~the timing~~$2.4 million of increased variable ~~performance based compensation.~~incentive compensation resulting from improved earnings. Selling, general and administrative expenses as a percentage of revenues ~~increased to 18%~~remained flat at 13% during both the ~~first~~second quarter of Fiscal ~~2018, compared to 14% during~~2023 and the ~~first~~second quarter of Fiscal ~~2017, primarily due to the reduction in revenue and slight increase in costs quarter over quarter.~~2022.

Income Tax ~~Benefit~~Provision

We recorded an income tax ~~benefit~~provision of ~~$1.1~~$2.5 million in the ~~first~~second quarter of Fiscal ~~2018,~~2023, compared to an income tax ~~benefit~~provision of ~~$1.4~~$1.8 million in the ~~first~~second quarter of Fiscal ~~2017.~~2022. The effective tax rate for the ~~first~~second quarter of Fiscal ~~2018~~2023 was ~~16%~~23%, compared to an effective tax rate of ~~83%~~305% for the second quarter of Fiscal 2022. For the three months ended March 31, 2023, the effective tax rate was favorably impacted by the estimated Research and Development Tax Credit (R&D Tax Credit), in addition to the projected utilization of net operating loss carryforwards in the UK that have been fully reserved with a valuation allowance. These benefits were offset by state income tax expense, certain nondeductible expenses and an income inclusion related to U.S. global intangible income.

Net Income/Loss

In the second quarter of Fiscal 2023, we recorded net income of $8.5 million, or $0.70 per diluted share, compared to a net loss of $1.2 million, or $0.10 per diluted share, in the second quarter of Fiscal 2022. This increase in net income was primarily due to the increase in bookings over the last 12 to 18 months which has led to an increase in revenues.

Backlog

The order backlog at March 31, 2023 was $1.0 billion, an increase of 50% from $679.8 million at December 31, 2022 and an increase of 132% from $440.0 million at March 31, 2022. Bookings, net of cancellations and scope reductions, increased by 237% in the second quarter of Fiscal 2023 to $508.2 million, compared to $150.8 million in the second quarter of Fiscal 2022, primarily driven by improved strength across our core oil, gas and petrochemical market sectors.

Six Months Ended March 31, 2023 Compared to Six Months Ended March 31, 2022 (Unaudited)

Revenue and Gross Profit

Revenues increased by 27%, or $63.9 million, to $298.3 million in the six months ended March 31, 2023. Domestic revenues increased by 39%, or $65.1 million, to $234.3 million in the six months ended March 31, 2023. International revenues decreased by 1.9%, or $1.2 million, to $64.0 million. Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

Revenues from our core oil and gas markets (excluding petrochemical) increased by 10%, or $9.5 million, to $106.1 million in the six months ended March 31, 2023, while petrochemical revenue increased by 34%, or $12.3 million, to $48.4 million in the first ~~quarter~~half of Fiscal ~~2017.~~2023. Revenue from our utility markets increased by 37%, or $19.2 million, to $71.1 million in the six months ended March 31, 2023. Traction market revenue decreased by 33%, or $7.0 million, to $14.4 million in the six months ended March 31, 2023. Commercial and other industrial market revenue increased by 152%, or $23.7 million, to $39.3 million, and revenues from all other markets combined increased by 49%, or $6.3 million, to $19.0 million in the first six months of Fiscal 2023.

Gross profit increased by 63%, or $20.4 million, to $52.9 million in the six months ended March 31, 2023 as compared to the first half of Fiscal 2022. Gross profit as a percentage of revenues increased to 18% in the first six months of Fiscal 2023 as compared to 14% in the six months ended March 31, 2022. The increase in gross profit was directly attributable to volume leverage and factory efficiencies as a result of the increase in volume, project execution, as well as effectively managing inflationary pressures while maintaining pricing models to correspond to current cost levels.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 17%, or $5.7 million, to $38.7 million in the six months ended March 31, 2023, primarily due to $3.2 million of increased variable incentive compensation resulting from improved earnings. Selling, general and administrative expenses as a percentage of revenues decreased to 13% during the six months ended March 31, 2023 compared to 14% during the six months ended March 31, 2022.

Other Income

We recorded other income of $0.3 million in the six months ended March 31, 2022 related to a gain on the sale of land. We did not record other income during the six months ended March 31, 2023.

Income Tax Provision

We recorded an income tax provision of $3.0 million in the six months ended March 31, 2023, compared to an income tax provision of $0.4 million in the six months ended March 31, 2022. The effective tax rate for the ~~first quarter~~six months ended March 31, 2023 was 23%, compared to an effective tax rate of ~~Fiscal 2018~~negative 10% for the six months ended March 31, 2022. For the six months ended March 31, 2023, the effective tax rate was ~~reduced~~favorably impacted by the estimated R&D Tax Credit, in addition to the projected utilization of net operating loss carryforwards in the UK that have been fully reserved with a valuation allowance. These benefits were offset by state income tax expense, certain nondeductible expenses and an income inclusion related to U.S. ~~Tax Cuts and Jobs Act (the Act). The Act lowers the corporate tax rate for C corporations from 35% to 21% effective January 1, 2018. As a result,~~global intangible income.Similarly, the effective tax rate for the first quarter of Fiscal 2018 represents a reduced blended U.S. tax rate of 24.5% for Fiscal 2018, but was partially offset by deferred tax expense of $0.7 million due to the re-measurement of our U.S. deferred tax assets, which are not expected to be realized prior to the end of Fiscal 2018. The final impact of the Act may differ from our estimates based on changes in interpretations or assumptions we make, as well as the issuance of additional guidance. Additionally our effective tax rate for the first quarter of Fiscal 2018 was reduced by a $0.2 million foreign tax loss which is reserved with a valuation allowance.

~~The effective tax rate for the first quarter of Fiscal 2017~~six months ended March 31, 2022 was favorably impacted by the ~~lower tax rate in~~estimated R&D Tax Credit and the ~~United Kingdom, the relative amounts of income/loss recognized in various jurisdictions, as well as the~~projected utilization of net operating loss carryforwards in Canada that ~~are~~were fully reserved with a valuation allowance. We also completed an IRS audit during the first quarter of Fiscal 2017, which favorably impacted the effective tax rate due to the release of a $0.3 million FIN 48 reserve relating to the Research and Development Tax Credit.

Net ~~loss~~Income/Loss

In the ~~first quarter of Fiscal 2018,~~six months ended March 31, 2023, we recorded ~~a loss~~net income of ~~$5.7~~$9.6 million, or ~~$0.49~~$0.80 per diluted share, compared to a net loss of ~~$0.3~~$4.1 million, or ~~$0.03~~$0.34 per diluted share, in the ~~first quarter of Fiscal 2017. The~~six months ended March 31, 2022. This increase in ~~our~~ net ~~loss compared to the prior year~~income was primarily due to ~~a decline~~the increase in ~~our project~~bookings over the last 12 to 18 months which has led to an increase in revenues.

Backlog

The order backlog at March 31, 2023 was $1.0 billion, an increase of 72% from $592.2 million at September 30, 2022. Bookings, net of cancellations and scope reductions, increased by 178% during the six months ended March 31, 2023 to $720.0 million, compared to $258.5 million during the six months ended March 31, 2022. The significant year-over-year increase was due to ~~depressed~~strength across our petrochemical, oil & gas and commercial and other industrial market ~~conditions and competitive pricing pressures, primarily in~~sectors.

Outlook

Recently we have seen cyclical recovery across our core oil, gas and petrochemical markets combined with increased global demand for cleaner-burning fuels as well as related processes utilizing low cost gas feedstocks. Our order activity in our core markets has been strong and includes some large domestic LNG and petrochemical projects. This strong commercial activity has increased our backlog to over $1.0 billion, which is a record for Powell. Additionally, diversification efforts outside of our core oil, gas and petrochemical end markets have also been a driver of our increase in backlog. This strong backlog of projects and pricing initiatives in response to persistent inflationary pressures should continue to drive increased revenue volumes throughout the remainder of 2023 and into 2024.

Our operating results are impacted by factors such as the timing of new order awards, project backlog, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution. Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers. Disruption in the global supply chain has negatively impacted our business and operating results as well due to the reduction in ~~our effective tax rate as a result~~availability and uncertainty in the timing of the ~~Act.~~

~~Backlog~~

~~The~~receipt of certain key component parts and commodities. These factors may result in periods of underutilization of our resources and facilities, which may negatively impact our ability to cover our fixed costs, or inhibit our ability to deliver completed products on time. We will continue to remain focused on the variables that impact our markets as well as cost management, labor and supply chain challenges. We will also continue to adjust to the global conditions in order ~~backlog at December 31, 2017 was $260.3 million, an increase from the $250.1 million at September 30, 2017, primarily due~~ to ~~an increase in commercial~~maintain competitive cost and ~~industrial projects. New orders increased during the first quarter of Fiscal 2018 to $100.0 million, compared to $90.8 million~~technological advantages in the ~~first quarter of Fiscal 2017.~~markets that we serve.

Liquidity and Capital Resources

As of ~~December~~March 31, ~~2017,~~2023, current assets exceeded current liabilities by ~~2.8 times and our debt to total capitalization was 0.51%.~~1.7 times.

Cash, cash equivalents and short-term investments ~~decreased~~increased to ~~$72.7~~$163.1 million at ~~December~~March 31, ~~2017,~~2023, compared to ~~$95.2~~$116.5 million at September 30, ~~2017.~~2022. This increase in cash was primarily driven by increased project volume and the timing of contract billing milestones. We ~~had restricted~~typically allocate a significant percentage of the progress billing to the early stages of the contract. These favorable billing milestones along with our increase in project backlog are the primary drivers for our increase in cash ~~held in~~at March 31, 2023. We believe that our strong working capital position, available borrowings under our credit facility and available cash should be sufficient to finance future operating activities, capital improvements and research and development initiatives for the foreseeable future.

On March 31, 2023, we entered into a ~~pledged collateral account related~~second amendment (the Second Amendment) to our credit agreement with Bank of America, N.A. (as amended, the U.S. Revolver of $27.8 million at December 31, 2017 and $24.9 million at September 30, 2017. For further information regarding our U.S. Revolver, see Note D of Notes to Condensed Consolidated Financial Statements.

~~Our U.S. Revolver is a $75.0 million~~Revolver). The Second Amendment increased the revolving credit facility inextended to us under the U.S. Revolver, which is available for both borrowings and letters of credit and expires September 27, 2024, from $75.0 million to $125.0 million. As amended by the Second Amendment, the U.S. Revolver states the lesser of $50 million or 50% of readily and available cash may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness, which is a component of the consolidated net leverage ratio. We have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio.

As of ~~December~~March 31, ~~2017,~~2023, there were no amounts borrowed under ~~this facility. Total~~the U.S Revolver, and letters of credit outstanding were $44.8 million. As of March 31, 2023, $80.2 million was available for the issuance of letters of credit and borrowing under the U.S. Revolver. We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0. Our most restrictive covenant, the consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness, which includes letters of credit. An increase in indebtedness or a decrease in EBITDAS could restrict our ability to issue letters of credit or borrow under the U.S. Revolver, which reduce our availability, were $27.0 million at December 31, 2017 and $24.1 million at September 30, 2017. The amount available under our U.S. Revolver at December 31, 2017 was $48.0 million. Total long-term debt, including current maturities, totaled $1.6 million at December 31, 2017, compared to $2.0 million at September 30, 2017.Revolver. For further information regarding our debt, see Notes DE and EF of Notes to Condensed Consolidated Financial Statements.

Approximately ~~$35~~$32.6 million of our cash, cash equivalents and short-term investments at ~~December~~March 31, ~~2017~~2023 was held outside of the ~~United States~~U.S. for our international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital to support our international operations. In the event that we elect to repatriate some or

all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., ~~under current tax laws~~ we ~~would~~may incur additional tax expense upon such ~~repatriation.~~repatriation under current tax laws.

We believe that cash and short-term investments available and borrowing capacity under our U.S. Revolver should be sufficient to finance future operating activities, capital improvements and debt repayments for the foreseeable future. We continue to monitor the factors that drive our markets and will continue to strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.

Operating Activities

~~Cash~~Operating activities provided net cash of $55.5 million during the six months ended March 31, 2023 and used ~~by operating activities decreased to $14.1 million for the first quarter~~net cash of ~~Fiscal 2018, compared to cash provided by operating activities of $3.4~~$13.0 million during the same period in Fiscal 2017. This decrease in operating cash flow for the first quarter of Fiscal 2018 was primarily due to the reduction in earnings year over year and increases in accounts receivable, partially offset by project billings.2022. Cash flow from operations is primarily influenced by ~~project volume,~~ the timing of milestone payments from our customers, project volume and the associated working capital requirements, as well as payment terms with our suppliers. This increase in operating cash flow was primarily due to the favorable timing of contract billing milestones resulting in increased cash flow as our backlog of projects has increased (as noted above).

Investing Activities

~~Net cash used in investing~~Investing activities provided $0.3 million during the ~~first quarter of Fiscal 2018 totaled $0.9 million compared to $15.8~~six months ended March 31, 2023 and used $7.6 million during the same period in Fiscal ~~2017. For~~2022. The increase in cash provided by investing activities in the first ~~quarter~~six months of Fiscal ~~2018, our net~~2023 is primarily due to short-term investment activity was $3.7 million and we spent approximately $1.7 million on purchases of plant improvements and equipment. In the first quarter of Fiscal 2017, we had purchases of short-term investments of $14.9 million.activity.

Financing Activities

Net cash used in financing activities was ~~$3.8~~$6.8 million ~~for~~during the ~~both~~six months ended March 31, 2023 and $7.2 million during the ~~first quarter~~same period in Fiscal 2022, which primarily consisted of ~~Fiscal 2018 and Fiscal 2017. This was primarily for cash~~approximately $6.1 million of dividends ~~of $3.0 million~~paid in ~~both periods.~~

~~New Accounting Standards~~

~~See Note A of Notes to Condensed Consolidated Financial Statements included in this report for information on new accounting standards.~~each period.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires usmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates.

There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2022, which was filed with the SEC on December 6, 2022.

For the three months ended December 31, 2017, our operating loss was positively impacted by $2.0 million, as a result of changes in contract estimates related to projects in progress at the beginning of the respective periods. These changes in estimates resulted primarily from, among other things, successful execution and close-out improvements, as well as other changes in facts and circumstances during these periods.

~~Outlook~~

The markets in which we participate are capital-intensive and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic conditions and anticipated environmental or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns. These factors influence the release of new capital projects by our customers, which are traditionally awarded in competitive bid situations. Scheduling of projects is matched to customer requirements. Projects typically take a number of months to produce, and schedules may change during the course of any particular project.

A significant portion of our revenues have historically been from the oil, gas and petrochemical markets. Unfavorable oil and gas commodity price levels have caused, and we anticipate will continue to cause, our customers to delay their investments. The reduction in available projects across the markets we serve has increased price pressures during this market cycle. This reduction in new business opportunities and increased market price pressures have impacted, and may continue to negatively impact, our backlog, revenues and operating results.

Our operating results have been, and we anticipate will continue to be, negatively impacted by factors such as the timing of new order awards, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which have and will continue to have, a negative impact on the timing of project execution. Our operating results also have been, and will continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers. These factors may result in periods of underutilization of our resources and facilities and negatively impact our ability to cover our fixed costs. If our core oil, gas and petrochemical markets do not improve, or decline further, our project backlog and revenue could continue to decline and negatively impact our operations. In response to our reduced project backlog and depressed market outlook, we took steps in Fiscal 2016 and 2017 to reduce our overall cost structure and better align our costs with future production requirements. We continue to assess our cost structure, operating performance and service offerings as the oil, gas and petrochemical markets remain challenging and uncertain. We anticipate that in Fiscal 2018, additional actions may be necessary.

We believe that our strong working capital position, cash available, low debt position and borrowing capacity under our existing credit facility should be sufficient to finance future operating activities, research and development initiatives, capital improvements and debt repayments for the foreseeable future. We continue to monitor the factors that drive our markets and will continue to strive to maintain our leadership and competitive advantage in the markets we serve while aligning our cost structures with market conditions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in market conditions, commodity prices, foreign ~~exchange rates~~currency transactions and interest rates.

Market Risk

We are exposed to general market risk and its potential impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions. Our customers ~~and their industries~~ are typically ~~engineering, procurement and construction firms,~~in the oil and gas ~~refining,~~and petrochemical markets, which include onshore and offshore ~~oil~~production, LNG facilities and ~~gas production,~~terminals, pipelines, refineries and petrochemical ~~pipeline, terminal, mining~~plants. Additional markets include electric utility and ~~metals,~~ light rail traction power ~~electric utility,~~as well as mining and metals, pulp and paper and other ~~heavy~~municipal, commercial and other industrial ~~customers.~~markets. Occasionally, our customers may include an engineering, procurement and construction (EPC) firm which may increase our market risk exposure based on the business climate of the EPC firm. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.

Commodity Price Risk

We are subject to market risk from fluctuating market prices of certain raw materials used in our products. While such materials are typically available from numerous suppliers, commodity raw materials are subject to price fluctuations. We attempt to pass along such commodity price increases to our customers on a contract-by-contract basis to avoid a negative effect on our profit margin. ~~While we may do so in~~We have entered into a derivative contract to hedge a portion of our exposure to commodity price risk. This contract is immaterial for the first half of Fiscal 2023. In the future, we ~~have not currently entered~~may enter into ~~any~~additional derivative contracts to further hedge our exposure to commodity price risk. We continue to experience price volatility with some of our key raw materials and components. Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings. Fluctuations in commodity prices may have a material impact on our future earnings and cash flows.

Foreign Currency Transaction Risk

We have foreign operations that expose us to foreign currency exchange rate risk in the British Pound Sterling, the Canadian Dollar and to a lesser extent the ~~Euro.~~Singapore Dollar and the Euro, among others. Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as accumulated other comprehensive ~~income (loss),~~loss, a component of stockholders’ equity in our ~~condensed consolidated balance sheets.~~Condensed Consolidated Balance Sheets. We believe the exposure to the effects that fluctuating foreign currencies have on our consolidated results of operations is limited because the foreign operations primarily invoice customers and collect ~~obligations~~payments in their respective local currencies or U.S. Dollars. Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies. For the ~~three~~six months ended ~~December~~March 31, ~~2017,~~2023, our realized foreign exchange ~~losses were $0.2~~loss was $0.4 million and ~~are~~is included in selling, general and administrative expenses in ~~the~~our Condensed Consolidated Statements of Operations.

Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was ~~$19.1~~$26.1 million as of ~~December~~March 31, ~~2017,~~2023, a decrease of ~~$0.3~~$2.9 million compared to September 30, ~~2017.~~2022. This decrease in comprehensive loss was primarily a result of fluctuations in the currency exchange rates for the Canadian Dollar and British Pound Sterling as we ~~remeasured~~re-measured the foreign operations of those divisions.

We do not ~~currently~~typically hedge our exposure to potential foreign currency translation adjustments.

Interest Rate Risk

If we ~~decide to~~ borrow under our ~~credit facility,~~U.S. Revolver, we will be subject to market risk resulting from changes in interest rates related to our floating rate bank credit facility. If we were to make such borrowings, a hypothetical 100 basis point increase in variable interest rates may result in a material impact toon our financial statements. While we do not currently have any derivative contracts to hedge our exposure to interest rate risk, in the past we have entered and may in the future enter into such contracts. During each of the periods presented, we have not experienced a significant effect on our business due to changes in interest rates.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We have established and maintain a system of disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed with the SEC pursuant to the Securities Exchange Act of 1934, as amended (Exchange Act), is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosures.

Management, with the participation of our CEO and CFO, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on such evaluation, our CEO and CFO have each concluded that as of the end of the period covered by this report, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.

Changes in Internal Control over Financial Reporting

There ~~have been~~were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 of the Exchange Act that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity.

Item 1A. Risk Factors

There ~~are~~have been no material changes from the risk factors previously disclosed in the ~~Company’s~~Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~2022, which was filed with the SEC on December 6, 2022.

Item 6. Exhibits



Number			Description of Exhibits
3.1		—	Certificate of Incorporation of Powell Industries, Inc. filed with the Secretary of State of the State of Delaware on February 11, 2004 (filed as Exhibit 3.1 to our Form 8-A/A filed November 1, 2004, and incorporated herein by reference).

3.2		—	Amended and Restated Bylaws of Powell Industries, Inc. (filed as Exhibit 3.1 to our Form 8-K filed October 12, 2012, and incorporated herein by reference).

*31.13.3		—	Amendment No. 1 to Amended and Restated Bylaws of Powell Industries, Inc. (filed as Exhibit 3.1 to our Form 8-K filed February 26, 2021, and incorporated herein by reference).

10.1		—	Second Amendment to Credit Agreement, dated March 31, 2023 (filed as Exhibit 10.1 to our Form 8-K filed April 6,2023 and incorporated herein by reference).

10.2		—	First Amendment to Powell Industries, Inc. 2014 Non-Employee Director Equity Incentive Plan (filed as Exhibit 10.2 to our Form S-8 filed February 9, 2023 and incorporated herein by reference).

10.3		—	First Amendment to Powell Industries, Inc. 2014 Equity Incentive Plan (filed as Exhibit 10.1 to our Form 8-K filed February 16, 2023 and incorporated herein by reference).

*31.1		—	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

*31.2			—	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

**32.1			—	Certification of Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

**32.2			—	Certification of Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

*~~101.INS~~101		—	—			~~XBRL Instance Document~~The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets (Unaudited); (ii) Condensed Consolidated Statements of Operations (Unaudited); (iii) Condensed Consolidated Statements of Comprehensive Income (Unaudited); (iv) Condensed Consolidated Statements of Stockholders' Equity (Unaudited); (v) Condensed Consolidated Statements of Cash Flows (Unaudited); and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited), tagged as blocks of text and including detailed tags.

*~~101.SCH~~104		—	—			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in Inline XBRL ~~Taxonomy Extension Schema Document~~(included as Exhibit 101).

*101.CAL				—	~~XBRL Taxonomy Extension Calculation Linkbase Document~~

*101.DEF	—	~~XBRL Taxonomy Extension Definition Linkbase Document~~

*101.LAB	—	~~XBRL Taxonomy Extension Label Linkbase Document~~

*101.PRE	—	~~XBRL Taxonomy Extension Presentation Linkbase Document~~

* Filed herewith
** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	POWELL INDUSTRIES, INC.
	(Registrant)

Date: ~~February 7, 2018~~May 3, 2023	By:	/s/ Brett A. Cope
		Brett A. Cope
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: May 3, 2023	By:	/s/ ~~Don R. Madison~~Michael W. Metcalf
		~~Don R. Madison~~Michael W. Metcalf
		Executive Vice President
		Chief Financial ~~and Administrative~~ Officer
		(Principal Financial Officer)



			Page
Part I — Financial Information			3
Item 1. Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets (Unaudited)			3
Condensed Consolidated Statements of Operations (Unaudited)			4
Condensed Consolidated Statements of Comprehensive ~~Loss~~Income (Loss) (Unaudited)			5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)			6
Condensed Consolidated Statements of Cash Flows (Unaudited)			67
Notes to Condensed Consolidated Financial Statements (Unaudited)			78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1720
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2024
Item 4. Controls and Procedures			2125

Part II — Other Information			2126
Item 1. Legal Proceedings			2126
Item 1A. Risk Factors			2226
Item 6. Exhibits			2227
Signatures			2328



	December 31, 2017		September 30, 2017
Raw materials, parts and subassemblies, net	$	17,701	$	17,848
Work-in-progress	834		600
Total inventories	$	18,535	$	18,448



	December 31, 2017			September 30, 2017
Costs incurred on uncompleted contracts	$	984,882		$	987,164
Estimated earnings	311,391			316,970
	1,296,273			1,304,134
Less: Billings to date	(1,294,017		)	(1,278,746		)
Net underbilled position	$	2,256		$	25,388
Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts	$	38,985		$	51,554
Billings in excess of costs and estimated earnings on uncompleted contracts	(36,729		)	(26,166		)
Net underbilled position	$	2,256		$	25,388