UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


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

For the quarterly period ended ~~June 30, 2021~~March 31, 2022


☐			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
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)

8550 Mosley Road
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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). ☒ 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 growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth 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 ☒ No

At ~~August~~May 2, ~~2021,~~2022, there were ~~11,691,673~~11,780,643 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)


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
ASSETS	ASSETS					ASSETS
Current Assets:	Current Assets:					Current Assets:
Cash and cash equivalents	Cash and cash equivalents	$	108,675	$	160,216	Cash and cash equivalents	$	86,431	$	114,314
Short-term investments	Short-term investments	20,165		18,705		Short-term investments	27,143		19,667

Accounts receivable, less allowance for credit losses of $545 and $510		72,369		69,957
Accounts receivable, less allowance for credit losses of $703 and $333						Accounts receivable, less allowance for credit losses of $703 and $333	90,741		78,304
Contract assets	Contract assets	50,827		50,995		Contract assets	58,553		54,199
Inventories	Inventories	28,397��		28,968		Inventories	43,685		29,835
Income taxes receivable	Income taxes receivable	172		467		Income taxes receivable	154		161
Prepaid expenses	Prepaid expenses	3,190		4,402		Prepaid expenses	2,413		4,382
Other current assets	Other current assets	1,739		1,948		Other current assets	2,559		1,599
Total Current Assets	Total Current Assets	285,534		335,658		Total Current Assets	311,679		302,461
Property, plant and equipment, net	Property, plant and equipment, net	112,485		114,372		Property, plant and equipment, net	105,968		109,457
Operating lease assets, net	Operating lease assets, net	3,732		5,217		Operating lease assets, net	3,205		3,453

Goodwill and intangible assets, net	Goodwill and intangible assets, net	1,028		1,161		Goodwill and intangible assets, net	1,003		1,003
Deferred income taxes	Deferred income taxes	4,230		3,644		Deferred income taxes	4,690		4,639
Other assets	Other assets	14,952		12,226		Other assets	13,160		15,179
Total Assets	Total Assets	$	421,961	$	472,278	Total Assets	$	439,705	$	436,192
LIABILITIES AND STOCKHOLDERS' EQUITY	LIABILITIES AND STOCKHOLDERS' EQUITY					LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:	Current Liabilities:					Current Liabilities:
Current maturities of long-term debt	Current maturities of long-term debt	$	400	$	400	Current maturities of long-term debt	$	—	$	400
Accounts payable	Accounts payable	33,416		35,029		Accounts payable	48,697		45,247
Contract liabilities	Contract liabilities	43,140		79,445		Contract liabilities	56,706		42,433
Accrued compensation and benefits	Accrued compensation and benefits	16,379		21,739		Accrued compensation and benefits	12,608		20,395
Accrued product warranty	Accrued product warranty	2,432		2,771		Accrued product warranty	2,347		2,531
Current operating lease liabilities	Current operating lease liabilities	1,640		2,352		Current operating lease liabilities	1,629		1,415
Income taxes payable	Income taxes payable	54		1,861		Income taxes payable	1,102		1,076
Other current liabilities	Other current liabilities	7,849		9,350		Other current liabilities	9,794		7,659
Total Current Liabilities	Total Current Liabilities	105,310		152,947		Total Current Liabilities	132,883		121,156
Long-term debt, net of current maturities		0		400

Deferred compensation	Deferred compensation	8,793		6,710		Deferred compensation	9,085		8,613
Long-term operating lease liabilities	Long-term operating lease liabilities	2,554		3,434		Long-term operating lease liabilities	1,836		2,413
Other long-term liabilities	Other long-term liabilities	2,363		2,161		Other long-term liabilities	3,031		2,787
Total Liabilities	Total Liabilities	119,020		165,652		Total Liabilities	146,835		134,969
Commitments and Contingencies (Note F)	Commitments and Contingencies (Note F)	0		0		Commitments and Contingencies (Note F)	0		0
Stockholders' Equity:	Stockholders' Equity:					Stockholders' Equity:
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	0		0		Preferred stock, par value $0.01; 5,000,000 shares authorized; none issued	—		—
Common stock, par value $0.01; 30,000,000 shares authorized; 12,497,691 and 12,422,411 shares issued, respectively		125		124
Common stock, par value $0.01; 30,000,000 shares authorized; 12,586,661 and 12,497,691 shares issued, respectively						Common stock, par value $0.01; 30,000,000 shares authorized; 12,586,661 and 12,497,691 shares issued, respectively	126		125
Additional paid-in capital	Additional paid-in capital	63,500		61,998		Additional paid-in capital	65,075		63,948
Retained earnings	Retained earnings	282,284		294,016		Retained earnings	272,068		282,505
Treasury stock, 806,018 shares at cost	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	Accumulated other comprehensive loss	(17,969)		(24,513)		Accumulated other comprehensive loss	(19,400)		(20,356)
Total Stockholders' Equity	Total Stockholders' Equity	302,941		306,626		Total Stockholders' Equity	292,870		301,223
Total Liabilities and Stockholders' Equity	Total Liabilities and Stockholders' Equity	$	421,961	$	472,278	Total Liabilities and Stockholders' Equity	$	439,705	$	436,192

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 June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Revenues	Revenues	$	115,813	$	118,062	$	341,105	$	403,781	Revenues	$	127,854	$	118,716	$	234,423	$	225,291
Cost of goods sold	Cost of goods sold	98,646		96,718		288,513		330,926		Cost of goods sold	108,771		101,563		201,904		189,867
Gross profit	Gross profit	17,167		21,344		52,592		72,855		Gross profit	19,083		17,153		32,519		35,424

Selling, general and administrative expenses	Selling, general and administrative expenses	16,710		15,511		50,259		51,372		Selling, general and administrative expenses	17,067		16,675		32,969		33,549
Research and development expenses	Research and development expenses	1,772		1,605		5,046		4,863		Research and development expenses	1,713		1,601		3,537		3,274
Amortization of intangible assets	Amortization of intangible assets	44		44		132		132		Amortization of intangible assets	—		44		—		88

Restructuring and other, net		0		1,400		0		1,400

Operating income (loss)	Operating income (loss)	(1,359)		2,784		(2,845)		15,088		Operating income (loss)	303		(1,167)		(3,987)		(1,487)

Other income										Other income	(279)		—		(279)		—

Interest expense		51		52		152		179
Interest income		(72)		(190)		(230)		(901)
Interest expense (income)										Interest expense (income)	(13)		4		(16)		(57)
Income (loss) before income taxes	Income (loss) before income taxes	(1,338)		2,922		(2,767)		15,810		Income (loss) before income taxes	595		(1,171)		(3,692)		(1,430)
Income tax provision (benefit)	Income tax provision (benefit)	703		(559)		(138)		2,133		Income tax provision (benefit)	1,812		(946)		371		(841)
Net income (loss)		$	(2,041)	$	3,481	$	(2,629)	$	13,677
Net loss										Net loss	$	(1,217)	$	(225)	$	(4,063)	$	(589)

Earnings (loss) per share:
Loss per share:										Loss per share:
Basic	Basic	$	(0.17)	$	0.30	$	(0.22)	$	1.18	Basic	$	(0.10)	$	(0.02)	$	(0.34)	$	(0.05)
Diluted	Diluted	$	(0.17)	$	0.30	$	(0.22)	$	1.17	Diluted	$	(0.10)	$	(0.02)	$	(0.34)	$	(0.05)

Weighted average shares:	Weighted average shares:									Weighted average shares:
Basic	Basic	11,720		11,631		11,700		11,622		Basic	11,801		11,707		11,783		11,690
Diluted	Diluted	11,720		11,698		11,700		11,686		Diluted	11,801		11,707		11,783		11,690
Dividends per share	Dividends per share	$	0.26	$	0.26	$	0.78	$	0.78	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 Income (Loss) (Unaudited)

(In thousands)


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Net income (loss)		$	(2,041)	$	3,481	$	(2,629)	$	13,677
Net loss										Net loss	$	(1,217)	$	(225)	$	(4,063)	$	(589)
Foreign currency translation adjustments	Foreign currency translation adjustments	1,301		2,543		6,544		(1,986)		Foreign currency translation adjustments	902		894		956		5,243
Comprehensive income (loss)	Comprehensive income (loss)	$	(740)	$	6,024	$	3,915	$	11,691	Comprehensive income (loss)	$	(315)	$	669	$	(3,107)	$	4,654

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															Accumulated
					Additional							Other								Additional							Other
		Common Stock			Paid-in		Retained		Treasury Stock			Comprehensive					Common Stock			Paid-in		Retained		Treasury Stock			Comprehensive
		Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Totals			Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Totals
Balance, September 30, 2020		12,422	$	124	$	61,998	$	294,016	(806)	$	(24,999)	$	(24,513)	$	306,626
Balance, September 30, 2021																Balance, September 30, 2021	12,498	$	125	$	63,948	$	282,505	(806)	$	(24,999)	$	(20,356)	$	301,223
Net loss	Net loss	—	—		—		(364)		—	—		—		(364)		Net loss	—	—		—		(2,846)		—	—		—		(2,846)
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		—		—	—		4,349		4,349		Foreign currency translation adjustments	—	—		—		—		—	—		54		54
Stock-based compensation	Stock-based compensation	59	1		893		—		—	—		—		894		Stock-based compensation	72	1		1,007		—		—	—		—		1,008
Shares withheld in lieu of employee tax withholding	Shares withheld in lieu of employee tax withholding	—	—		(632)		—		—	—		—		(632)		Shares withheld in lieu of employee tax withholding	—	—		(660)		—		—	—		—		(660)
Dividends paid		—	—		—		(3,028)		—	—		—		(3,028)
Balance, December 31, 2020		12,481	$	125	$	62,259	$	290,624	(806)	$	(24,999)	$	(20,164)	$	307,845
Dividends																Dividends	—	—		69		(3,269)		—	—		—		(3,200)
Balance, December 31, 2021																Balance, December 31, 2021	12,570	$	126	$	64,364	$	276,390	(806)	$	(24,999)	$	(20,302)	$	295,579
Net loss	Net loss	—	—		—		(225)		—	—		—		(225)		Net loss	—	—		—		(1,217)		—	—		—		(1,217)
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		—		—	—		894		894		Foreign currency translation adjustments	—	—		—		—		—	—		902		902
Stock-based compensation	Stock-based compensation	17	—		853		—		—	—		—		853		Stock-based compensation	17	—		711		—		—	—		—		711

Dividends paid		—	—		—		(3,035)		—	—		—		(3,035)
Balance, March 31, 2021		12,498	$	125	$	63,112	$	287,364	(806)	$	(24,999)	$	(19,270)	$	306,332
Net loss		—	—		—		(2,041)		—	—		—		(2,041)
Foreign currency translation adjustments		—	—		—		—		—	—		1,301		1,301
Stock-based compensation		0	—		388		—		—	—		—		388
Dividends																Dividends	—	—		—		(3,105)		—	—		—		(3,105)
Balance, March 31, 2022																Balance, March 31, 2022	12,587	$	126	$	65,075	$	272,068	(806)	$	(24,999)	$	(19,400)	$	292,870

Dividends paid		—	—		—		(3,039)		—	—		—		(3,039)
Balance, June 30, 2021		12,498	$	125	$	63,500	$	282,284	(806)	$	(24,999)	$	(17,969)	$	302,941

~~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, 2019 12,373 $ 124 $ 59,153 $ 289,422 (806) $ (24,999) $ (24,547) $ 299,153
Net income — — — 2,775 — — — 2,775
Foreign currency translation adjustments — — — — — — 2,387 2,387
Stock-based compensation 30 — 982 — — — — 982
Shares withheld in lieu of employee tax withholding — — (611) — — — — (611)
Dividends paid — — — (3,013) — — — (3,013)
Balance, December 31, 2019 12,403 $ 124 $ 59,524 $ 289,184 (806) $ (24,999) $ (22,160) $ 301,673
Net income — — — 7,421 — — — 7,421
Foreign currency translation adjustments — —
— — — — (6,916) (6,916)
Stock-based compensation 17 — 968 — — — — 968
Dividends paid — — — (3,015) — — — (3,015)
Balance, March 31, 2020 12,420 $ 124 $ 60,492 $ 293,590 (806) $ (24,999) $ (29,076) $ 300,131
Net income — — — 3,481 — — — 3,481
Foreign currency translation adjustments — — — — — — 2,543 2,543
Stock-based compensation 1 — 441 — — — — 441
Shares withheld in lieu of employee tax withholding — — (6) — — — — (6)
Dividends paid — — — (3,019) — — — (3,019)
Balance, June 30, 2020 12,421 $ 124 $ 60,927 $ 294,052 (806) $ (24,999) $ (26,533) $ 303,571


											Accumulated
				Additional							Other
	Common Stock			Paid-in		Retained		Treasury Stock			Comprehensive
	Shares	Amount		Capital		Earnings		Shares	Amount		Income/(Loss)		Totals
Balance, September 30, 2020	12,422	$	124	$	61,998	$	294,016	(806)	$	(24,999)	$	(24,513)	$	306,626
Net loss	—	—		—		(364)		—	—		—		(364)
Foreign currency translation adjustments	—	—		—		—		—	—		4,349		4,349
Stock-based compensation	59	1		893		—		—	—		—		894
Shares withheld in lieu of employee tax withholding	—	—		(632)		—		—	—		—		(632)
Dividends	—	—		—		(3,028)		—	—		—		(3,028)
Balance, December 31, 2020	12,481	$	125	$	62,259	$	290,624	(806)	$	(24,999)	$	(20,164)	$	307,845
Net loss	—	—		—		(225)		—	—		—		(225)
Foreign currency translation adjustments	—	—		—		—		—	—		894		894
Stock-based compensation	17	—		853		—		—	—		—		853


Dividends	—	—		—		(3,035)		—	—		—		(3,035)
Balance, March 31, 2021	12,498	$	125	$	63,112	$	287,364	(806)	$	(24,999)	$	(19,270)	$	306,332

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)


		Nine months ended June 30,					Six months ended March 31,
		2021		2020			2022		2021
Operating Activities:	Operating Activities:					Operating Activities:
Net income (loss)		$	(2,629)	$	13,677
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss						Net loss	$	(4,063)	$	(589)
Adjustments to reconcile net loss to net cash used in operating activities:						Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	Depreciation and amortization	7,899		7,878		Depreciation and amortization	4,831		5,289
Stock-based compensation	Stock-based compensation	2,135		2,391		Stock-based compensation	1,720		1,747
Bad debt expense, net		194		187
Bad debt expense (recovery), net						Bad debt expense (recovery), net	445		(132)
Deferred income taxes	Deferred income taxes	(586)		1,640		Deferred income taxes	(51)		(1,022)

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable, net	Accounts receivable, net	(1,195)		14,268		Accounts receivable, net	(12,662)		(820)
Contract assets and liabilities, net	Contract assets and liabilities, net	(35,673)		30,150		Contract assets and liabilities, net	9,888		(16,647)
Inventories	Inventories	991		(2,534)		Inventories	(13,835)		(707)
Income taxes	Income taxes	(1,502)		(628)		Income taxes	31		(1,231)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	1,490		1,071		Prepaid expenses and other current assets	1,009		2,542
Accounts payable	Accounts payable	(2,202)		(11,264)		Accounts payable	3,372		3,908
Accrued liabilities	Accrued liabilities	(7,129)		(2,305)		Accrued liabilities	(5,761)		(9,119)
Other, net	Other, net	(1,486)		(1,131)		Other, net	2,068		(1,298)
Net cash provided by (used in) operating activities		(39,693)		53,400
Net cash used in operating activities						Net cash used in operating activities	(13,008)		(18,079)
Investing Activities:	Investing Activities:					Investing Activities:
Purchases of short-term investments	Purchases of short-term investments	(19,868)		(7,330)		Purchases of short-term investments	(15,090)		(15,835)
Maturities of short-term investments	Maturities of short-term investments	19,821		6,146		Maturities of short-term investments	7,995		15,788
Purchases of property, plant and equipment, net		(2,440)		(4,274)

Purchases of property, plant and equipment						Purchases of property, plant and equipment	(1,116)		(1,623)
Proceeds from sale of property, plant and equipment						Proceeds from sale of property, plant and equipment	587		33
Proceeds from life insurance policies	Proceeds from life insurance policies	474		0		Proceeds from life insurance policies	—		474
Net cash used in investing activities	Net cash used in investing activities	(2,013)		(5,458)		Net cash used in investing activities	(7,624)		(1,163)
Financing Activities:	Financing Activities:					Financing Activities:
Payments on industrial development revenue bonds	Payments on industrial development revenue bonds	(400)		(400)		Payments on industrial development revenue bonds	(400)		(400)
Shares withheld in lieu of employee tax withholding	Shares withheld in lieu of employee tax withholding	(632)		(617)		Shares withheld in lieu of employee tax withholding	(660)		(632)
Dividends paid	Dividends paid	(9,102)		(9,047)		Dividends paid	(6,106)		(6,063)
Net cash used in financing activities	Net cash used in financing activities	(10,134)		(10,064)		Net cash used in financing activities	(7,166)		(7,095)
Net increase (decrease) in cash and cash equivalents		(51,840)		37,878
Net decrease in cash and cash equivalents						Net decrease in cash and cash equivalents	(27,798)		(26,337)
Effect of exchange rate changes on cash and cash equivalents	Effect of exchange rate changes on cash and cash equivalents	299		(491)		Effect of exchange rate changes on cash and cash equivalents	(85)		214
Cash and cash equivalents at beginning of period	Cash and cash equivalents at beginning of period	160,216		118,639		Cash and cash equivalents at beginning of period	114,314		160,216
Cash and cash equivalents at end of period	Cash and cash equivalents at end of period	$	108,675	$	156,026	Cash and cash equivalents at end of period	$	86,431	$	134,093

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

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 75 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: Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, B.V.

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

Impact of ~~the COVID-19 Pandemic~~Global Economic Uncertainty and Oil and Gas Commodity Market Volatility on Powell

~~Through~~Various factors resulting in global economic uncertainty have negatively impacted our results over the ~~first nine months of Fiscal 2021,~~last 18 months. In particular, the COVID-19 pandemic continues to impact global energy markets. T~~his~~This pandemic has negatively impacted demand, which in turn has resulted in considerable volatility across global oil and gas commodity markets. As a result, some of our industrial customers ~~are deferring~~have deferred or ~~suspending~~suspended their planned capital expenditures. CDuring this period, certain of our customers have asked that we delay or cancel our manufacturing on their projects as their operations have been negatively impacted by this pandemic and the reduced oil and gas demand, which has resulted in recognition of cancellation fees based on contract terms and the extent of our progress on the projects. We continue to work with ~~and review the contracts with~~ our key suppliers who ~~have been impacted by this pandemic~~are facing various issues related to the availability and timing of the receipt of key component parts and commodities to ensure that we are able to meet our customer commitments.

The consequences of a prolonged global economic decline could include, but are not limited to, a continued reduction in commercial and industrial activity. ~~Accordingly, the~~The Company cannot reasonably estimate the duration or severity of this pandemic, or the extent to which the ~~disruption~~resulting disruptions may materially impact our business, results of operations or cash flows. We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments.

Basis of Presentation

These unaudited condensed consolidated financial statements include the accounts of Powell and its 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, ~~2020,~~2021, which was filed with the Securities and Exchange Commission (SEC) on December ~~9, 2020.~~8, 2021.

References to Fiscal ~~2021~~2022 and Fiscal ~~2020~~2021 used throughout this report shall mean our fiscal years ended September 30, ~~2021~~2022 and ~~2020,~~2021, 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 on our customer contracts, the allowance for 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 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 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 Standard~~

In June 2016, the Financial Accounting Standards Board (FASB) issued a new topic on measurement of credit losses. The topic introduces an impairment model known as the current expected credit loss (CECL) model that is based on an expected loss methodology rather than an incurred loss methodology for financial instruments. Under the new topic, an entity recognizes as an allowance its estimate of expected credit losses with the intention of improving financial reporting by requiring timelier recognition of such losses. We adopted this topic on October 1, 2020 and such adoption did not have a material impact on our consolidated financial statements.

B. 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 June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Numerator:	Numerator:									Numerator:
Net income (loss)		$	(2,041)	$	3,481	$	(2,629)	$	13,677
Net loss										Net loss	$	(1,217)	$	(225)	$	(4,063)	$	(589)
Denominator:	Denominator:									Denominator:
Weighted average basic shares	Weighted average basic shares	11,720		11,631		11,700		11,622		Weighted average basic shares	11,801		11,707		11,783		11,690
Dilutive effect of restricted stock units	Dilutive effect of restricted stock units	0		67		0		64		Dilutive effect of restricted stock units	—		—		—		—
Weighted average diluted shares	Weighted average diluted shares	11,720		11,698		11,700		11,686		Weighted average diluted shares	11,801		11,707		11,783		11,690
Earnings (loss) per share:
Loss per share:										Loss per share:
Basic	Basic	$	(0.17)	$	0.30	$	(0.22)	$	1.18	Basic	$	(0.10)	$	(0.02)	$	(0.34)	$	(0.05)
Diluted	Diluted	$	(0.17)	$	0.30	$	(0.22)	$	1.17	Diluted	$	(0.10)	$	(0.02)	$	(0.34)	$	(0.05)

For each of the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, we incurred a net ~~loss~~losses and therefore all potential common shares were deemed to be anti-dilutive.

C. Detail of Selected Balance Sheet Accounts

Allowance for Credit Losses

Activity in our allowance for credit losses consisted of the following (in thousands):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Balance at beginning of period	Balance at beginning of period	$	382	$	300	$	510	$	301	Balance at beginning of period	$	411	$	493	$	333	$	510
Bad debt expense, net		326		136		194		187
Bad debt expense (recovery), net										Bad debt expense (recovery), net	353		(113)		445		(132)
Uncollectible accounts written off, net of recoveries	Uncollectible accounts written off, net of recoveries	(168)		(2)		(178)		(57)		Uncollectible accounts written off, net of recoveries	(57)		—		(71)		(10)
Change due to foreign currency translation	Change due to foreign currency translation	5		0		19		3		Change due to foreign currency translation	(4)		2		(4)		14
Balance at end of period	Balance at end of period	$	545	$	434	$	545	$	434	Balance at end of period	$	703	$	382	$	703	$	382

Inventories

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


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Raw materials, parts and sub-assemblies, net	Raw materials, parts and sub-assemblies, net	$	27,325	$	27,429	Raw materials, parts and sub-assemblies, net	$	42,282	$	28,688
Work-in-progress	Work-in-progress	1,072		1,539		Work-in-progress	1,403		1,147
Total inventories	Total inventories	$	28,397	$	28,968	Total inventories	$	43,685	$	29,835

Accrued Product Warranty

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


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Balance at beginning of period	Balance at beginning of period	$	2,467	$	3,276	$	2,771	$	2,946	Balance at beginning of period	$	2,443	$	2,675	$	2,531	$	2,771
Increase to warranty expense	Increase to warranty expense	515		276		1,568		1,904		Increase to warranty expense	323		395		616		1,053
Deduction for warranty charges	Deduction for warranty charges	(557)		(555)		(1,970)		(1,826)		Deduction for warranty charges	(421)		(609)		(803)		(1,388)
Change due to foreign currency translation	Change due to foreign currency translation	7		14		63		(13)		Change due to foreign currency translation	2		6		3		31
Balance at end of period	Balance at end of period	$	2,432	$	3,011	$	2,432	$	3,011	Balance at end of period	$	2,347	$	2,467	$	2,347	$	2,467

D. Revenue

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, ~~to measure~~ the extent of progress ~~toward~~towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance ~~obligation and the recognition of revenue over time.~~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 value-added services such as field service inspection, installation, commissioning, modification and repair, 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 94% of total revenues for the three and six months ended March 31, 2022, 93% of total revenues for the three months ended ~~June 30,~~March 31, 2021 and 92% of total revenues for the ~~nine~~six months ended ~~June 30, 2021 and 95% of total revenues for each of the three and nine months ended June 30, 2020.~~March 31, 2021.

~~We also~~Additionally, we 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 6% of total revenues for the three and six months ended March 31, 2022, 7% of total revenues for the three months ended ~~June 30,~~March 31, 2021 and 8% of total revenues for the ~~nine~~six months ended ~~June 30, 2021 and 5% of total revenues for each of the three and nine months ended June 30, 2020.~~March 31, 2021.

~~Additionally, some~~

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~~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 ~~June 30, 2021,~~March 31, 2022, we had backlog of ~~$425.5~~$440.0 million, of which approximately ~~$292.8~~$310.9 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 ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ our operating results were positively impacted by ~~$11.4~~$5.6 million and ~~$10.8~~$8.2 million, respectively, as a result of 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.

The decrease from the prior year is primarily due to the increase in direct materials cost, which we were not able to pass on to our customers.

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. ~~The timing of contract billing milestones related to our Fiscal 2020 contract award for a large industrial project contributed significantly to our net contract liability at September 30, 2020.~~

Contract assets and liabilities as of ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020~~2021 are summarized below (in thousands):


		June 30, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Contract assets	Contract assets	$	50,827	$	50,995	Contract assets	$	58,553	$	54,199
Contract liabilities	Contract liabilities	(43,140)		(79,445)		Contract liabilities	(56,706)		(42,433)
Net contract asset (liability)		$	7,687	$	(28,450)
Net contract asset						Net contract asset	$	1,847	$	11,766

The ~~increase~~decrease in net contract asset at ~~June 30, 2021~~March 31, 2022 from September 30, ~~2020~~2021 was primarily due to the timing of contract billing milestones and new ~~orders.~~orders as well as cash used on our large industrial project awarded in Fiscal 2020. 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 ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, we recognized revenue of approximately ~~$63.5~~$33.5 million that was related to contract liabilities outstanding at September 30, ~~2020.~~2021.

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 ~~contain retention~~allow customers to withhold a small percentage of billings pursuant to retainage provisions, ~~that become~~and such amounts are generally due upon completion of ~~contractual requirements.~~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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, accounts receivable included retention amounts of ~~$9.3~~$9.8 million and ~~$6.9~~$9.6 million, respectively. Of the retained amount at ~~June 30, 2021, $7.3~~March 31, 2022, $9.1 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining ~~$2.0~~$0.7 million is recorded in other assets.

1312

Disaggregation of Revenue

The following tables present our disaggregated revenue by geographic destination and market sector for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
United States	United States	$	88,412	$	89,499	$	256,937	$	318,009	United States	$	86,992	$	87,939	$	169,137	$	168,525
Canada	Canada	16,529		16,970		48,354		46,831		Canada	22,053		17,734		37,178		31,825
Europe, Middle East and Africa	Europe, Middle East and Africa	8,926		6,422		28,120		25,404		Europe, Middle East and Africa	15,551		10,937		23,381		19,193
Asia/Pacific	Asia/Pacific	1,651		4,643		6,376		11,784		Asia/Pacific	1,646		2,009		2,590		4,725
Mexico, Central and South America	Mexico, Central and South America	295		528		1,318		1,753		Mexico, Central and South America	1,612		97		2,137		1,023
Total revenues by geographic destination	Total revenues by geographic destination	$	115,813	$	118,062	$	341,105	$	403,781	Total revenues by geographic destination	$	127,854	$	118,716	$	234,423	$	225,291


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Oil and gas		$	49,272	$	45,851	$	139,443	$	157,798
Oil and gas (excludes petrochemical)										Oil and gas (excludes petrochemical)	$	53,634	$	50,142	$	96,655	$	90,171
Petrochemical	Petrochemical	15,365		29,293		34,725		107,057		Petrochemical	18,853		10,196		36,081		19,361
Electric utility	Electric utility	26,175		16,725		82,797		63,994		Electric utility	30,374		28,452		51,907		56,622
Traction power	Traction power	13,821		9,122		42,322		31,417		Traction power	10,054		15,140		21,426		28,501
All others	All others	11,180		17,071		41,818		43,515		All others	14,939		14,786		28,354		30,636
Total revenues by market sector	Total revenues by market sector	$	115,813	$	118,062	$	341,105	$	403,781	Total revenues by market sector	$	127,854	$	118,716	$	234,423	$	225,291

E. Long-Term Debt

Long-term debt consisted of the following (in thousands):

June 30, 2021 September 30, 2020
Industrial development revenue bonds $ 400 $ 800
Less: current portion (400) (400)
Total long-term debt $ 0 $ 400


	March 31, 2022		September 30, 2021
Industrial development revenue bonds	$	—	$	400
Less: current portion	—		(400)
Total long-term debt	$	—	$	—

U.S. Revolver

We have a credit agreement with Bank of America, N.A. ~~(the~~(as amended, the "U.S. Revolver"), which is a $75.0 million revolving credit facility that is available for both borrowings and letters of credit and expires September 27, 2024. ~~On March 12, 2021, we entered into a first amendment to the~~The U.S. Revolver ~~which, among other things, amended certain terms related to the calculation of the consolidated leverage ratio from gross leverage to net leverage. As a result of the first amendment,~~states that up to $30 million may be deducted from the amount of letters of credit outstanding (not to be less than 0)zero) when calculating the consolidated funded indebtedness which is a component of the consolidated net leverage ratio. Additionally, 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 ~~June 30, 2021,~~March 31, 2022, there were 0no amounts borrowed under the U.S. Revolver and letters of credit outstanding were ~~$39.9~~$32.2 million. There was ~~$35.1~~$42.8 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of ~~June 30, 2021.~~March 31, 2022.

We are required to maintain certain financial covenants, the most significant of 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 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 indebtedness, which includes letters of credit, or a decrease in EBITDAS could restrict our ability to issue letters of credit or borrow under the U.S. Revolver. Additionally, we must maintain a consolidated cash balance of $30 million at all times, which ~~now~~ 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 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 ~~June 30, 2021,~~March 31, 2022, 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 on either the 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 plus 0.50%, (b) the Bank of America prime rate or (c) the London Interbank Offered Rate (LIBOR) successor rate plus 1.00%. The applicable rate is generally a range from (0.25)% to 1.75% depending on the type of loan and the Company's consolidated net leverage ratio. On December 31, 2021, the Company entered into a LIBOR Transition Amendment with Bank of America that states that LIBOR will be replaced with a successor rate in accordance with the U.S. Revolver.

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.

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) for the completion of our Northlake, Illinois facility. The Bonds ~~are subject to various covenants, for which we were in compliance at June 30, 2021. The Bonds mature in~~matured on October 1, 2021 and ~~bear interest at a floating rate determined weekly by the Bonds’ remarketing agent. This interest rate~~our final payment of $0.4 million was ~~0.13% as of June 30, 2021.~~made.

F. Commitments and Contingencies

Letters of Credit, Bank Guarantees and Bonds

Certain customers require us to post letters of credit, bank guarantees or surety 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 draws or claims related to security instruments for the periods reported. We were contingently liable for letters of credit of ~~$39.9~~$32.2 million as of ~~June 30, 2021.~~March 31, 2022. We also had surety bonds totaling ~~$141.2~~$149.0 million that were outstanding, with additional bonding capacity of ~~$458.8~~$451.0 million available, at ~~June 30, 2021. At present, we~~March 31, 2022. 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.

We have a ~~$9.7~~$6.6 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank that provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At ~~June 30, 2021,~~March 31, 2022, we had outstanding guarantees totaling ~~$7.7~~$3.2 million and amounts available under this Facility Agreement were ~~$2.0~~$3.4 million. The Facility Agreement provides for ~~financial covenants and~~ customary events of default, and carries cross-default provisions with our U.S. Revolver. 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 ~~June 30, 2021,~~March 31, 2022, 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.

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G. Stock-Based Compensation

Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020~~2021 for a full description of our existing stock-based compensation plans.

Restricted Stock Units

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 price of our common stock as reported on the NASDAQ Global Market on the grant dates. Typically, these grants vest over a three-year period from the date of issuance and are a blend of time-based and 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 performance-based shares vest based on the three-year earnings performance of the Company following the grant date. At ~~June 30, 2021,~~March 31, 2022, there were ~~200,919~~235,502 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon ~~vesting.~~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 ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 is summarized below:


		Number of Restricted Stock Units	Weighted Average Grant Value Per Share			Number of Restricted Stock Units	Weighted Average Grant Value Per Share
Outstanding at September 30, 2020		154,034	$	35.37
Outstanding at September 30, 2021					Outstanding at September 30, 2021	199,919	$	30.34
Granted	Granted	104,550	24.08		Granted	107,350	24.79
Vested	Vested	(55,748)	32.50		Vested	(71,767)	32.66
Forfeited/canceled	Forfeited/canceled	(1,917)	32.58		Forfeited/canceled	—	—
Outstanding at June 30, 2021		200,919	$	30.32
Outstanding at March 31, 2022					Outstanding at March 31, 2022	235,502	$	26.94

During the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we recorded compensation expense of ~~$1.7~~$1.4 million and ~~$1.9~~$1.3 million, respectively, related to the RSUs.

Restricted Stock

Each non-employee director receives 2,400 restricted shares of the Company’s common stock annually. NaN-percent of the restricted stock granted to each of our non-employee directors vests immediately, while the remaining 50-percent vests on the anniversary of the grant date. Compensation expense is recognized immediately for the first 50-percent of the restricted stock granted, while compensation expense for the remaining 50-percent is recognized over the remaining vesting period. In February ~~2021,~~2022, 16,800 shares of restricted stock were issued to our non-employee directors under the 2014 Non-Employee Director Equity Incentive Plan at a price of ~~$31.33~~$23.09 per share. During ~~both~~ the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ we recorded compensation expense of ~~$0.5~~$0.3 million and $0.4 million, respectively, related to restricted stock.

H. Fair Value Measurements

We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit 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: 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.

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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 ~~June 30, 2021~~March 31, 2022 (in thousands):


		Fair Value Measurements at June 30, 2021									Fair Value Measurements at March 31, 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 June 30, 2021			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, 2022
Assets:	Assets:									Assets:
Cash and cash equivalents	Cash and cash equivalents	$	108,675	$	0	$	0	$	108,675	Cash and cash equivalents	$	86,431	$	—	$	—	$	86,431
Short-term investments	Short-term investments	20,165		0		0		20,165		Short-term investments	27,143		—		—		27,143

Other assets	Other assets	0		9,191		0		9,191		Other assets	—		8,674		—		8,674
Liabilities:	Liabilities:									Liabilities:
Deferred compensation	Deferred compensation	0		8,693		0		8,693		Deferred compensation	—		9,024		—		9,024

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, ~~2020~~2021 (in thousands):


		Fair Value Measurements at September 30, 2020									Fair Value Measurements at September 30, 2021
		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, 2020			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, 2021
Assets:	Assets:									Assets:
Cash and cash equivalents	Cash and cash equivalents	$	160,216	$	0	$	0	$	160,216	Cash and cash equivalents	$	114,314	$	—	$	—	$	114,314
Short-term investments	Short-term investments	18,705		0		0		18,705		Short-term investments	19,667		—		—		19,667

Other assets	Other assets	0		7,351		0		7,351		Other assets	—		9,100		—		9,100
Liabilities:	Liabilities:									Liabilities:
Deferred compensation	Deferred compensation	0		6,569		0		6,569		Deferred compensation	—		8,527		—		8,527

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.

Other Assets and Deferred Compensation – We hold investments in an irrevocable Rabbi Trust for our deferred compensation plan. The assets 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 funds and company-owned life insurance 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 have designated to serve as the basis for measurement of the notional value of their accounts. Because the deferred compensation liability is intended to offset the plan 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 ~~June 30, 2021.~~March 31, 2022.

1716

I. Leases

Our leases consist primarily of office and manufacturing space ~~construction equipment~~ and ~~office~~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 which 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 ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively (in thousands):


		Three months ended June 30,				Nine months ended June 30,					Three months ended March 31,				Six months ended March 31,
Lease Cost	Lease Cost	2021		2020		2021		2020		Lease Cost	2022		2021		2022		2021
Operating lease cost	Operating lease cost	$	598	$	571	$	1,835	$	1,779	Operating lease cost	$	573	$	629	$	1,143	$	1,237
Less: sublease income	Less: sublease income	(175)		(156)		(532)		(393)		Less: sublease income	(173)		(177)		(347)		(357)
Variable lease cost(1)	Variable lease cost(1)	117		86		334		265		Variable lease cost(1)	117		109		258		217
Short-term lease cost(2)	Short-term lease cost(2)	365		148		853		496		Short-term lease cost(2)	579		319		852		488
Total lease cost	Total lease cost	$	905	$	649	$	2,490	$	2,147	Total lease cost	$	1,096	$	880	$	1,906	$	1,585

(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. ~~Our~~As of March 31, 2022 and September 30, 2021, our operating lease assets have been reduced by a lease accrual of ~~$0.5~~$0.3 million and $0.4 million, respectively, 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 ~~June 30, 2021~~March 31, 2022 and September 30, ~~2020,~~2021, respectively (in thousands):


Operating Leases	Operating Leases	June 30, 2021		September 30, 2020		Operating Leases	March 31, 2022		September 30, 2021
Assets:	Assets:					Assets:
Operating lease assets, net	Operating lease assets, net	$	3,732	$	5,217	Operating lease assets, net	$	3,205	$	3,453
Liabilities:	Liabilities:					Liabilities:
Current operating lease liabilities	Current operating lease liabilities	1,640		2,352		Current operating lease liabilities	1,629		1,415
Long-term operating lease liabilities	Long-term operating lease liabilities	2,554		3,434		Long-term operating lease liabilities	1,836		2,413
Total lease liabilities	Total lease liabilities	$	4,194	$	5,786	Total lease liabilities	$	3,465	$	3,828

The following table provides the maturities of our operating lease liabilities as of ~~June 30, 2021~~March 31, 2022 (in thousands):


		Operating Leases			Operating Leases
Remainder of 2021		$	469
2022		2,411
Remainder of 2022				Remainder of 2022	$	1,232
2023	2023	1,380		2023	1,616
2024	2024	101		2024	416
2025	2025	0		2025	258
2026				2026	65
Thereafter	Thereafter	0		Thereafter	—
Total future minimum lease payments	Total future minimum lease payments	4,361		Total future minimum lease payments	$	3,587
Less: present value discount (imputed interest)	Less: present value discount (imputed interest)	(167)		Less: present value discount (imputed interest)	(122)
Present value of lease liabilities	Present value of lease liabilities	$	4,194	Present value of lease liabilities	$	3,465

The weighted average discount rate as of ~~June 30, 2021~~March 31, 2022 was ~~4.1%~~3.81%. The weighted average remaining lease term was ~~1.9~~1.96 years at ~~June 30, 2021.~~March 31, 2022.

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J. Income Taxes

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


		Three months ended June 30,						Nine months ended June 30,							Three months ended March 31,						Six months ended March 31,
		2021			2020			2021			2020				2022			2021			2022			2021
Income (loss) before income taxes	Income (loss) before income taxes	$	(1,338)		$	2,922		$	(2,767)		$	15,810		Income (loss) before income taxes	$	595		$	(1,171)		$	(3,692)		$	(1,430)

Income tax provision (benefit)	Income tax provision (benefit)	703			(559)			(138)			2,133			Income tax provision (benefit)	1,812			(946)			371			(841)

Net income (loss)		$	(2,041)		$	3,481		$	(2,629)		$	13,677
Net loss														Net loss	$	(1,217)		$	(225)		$	(4,063)		$	(589)

Effective tax rate	Effective tax rate	(53)		%	(19)		%	5		%	13		%	Effective tax rate	305		%	81		%	(10)		%	59		%

~~For~~During interim reporting periods, the ~~three months ended June 30, 2021, the~~provision for income ~~tax provision resulted in a negative~~taxes is calculated by applying an estimated annual effective tax rate ~~for the period due~~ to ~~our inability to recognize~~year-to-date ordinary pre-tax income (loss).As a ~~tax benefit related to losses~~result, a significant variation in the ~~United Kingdom~~customary relationship between income tax expense and pre-tax income may occur.Due to the ~~change in the estimated relative amounts of income/loss recognized in the various tax jurisdictions. These items also reduced the tax benefit for the nine months ended June 30, 2021. The~~ estimated Research and Development Tax Credit (R&D Tax Credit) ~~as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a tax benefit for the three and nine months ended June 30, 2021.~~

~~The effective tax rate for the quarter ended June 30, 2020 was favorably impacted by the tax benefits related to the R&D Tax Credit~~ as well as the projected utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation ~~allowance. In addition, as~~allowance, we are projecting an income tax benefit for the full fiscal year ended September 30, 2022, which would result in a ~~result~~negative effective tax rate.When this annual effective tax rate is applied to the year-to-date loss, a tax provision results for the three and six months ended March 31, 2022. The effective tax rate was largely impacted by the change in the annual estimated relative amounts of income (loss) recognized in the ~~expiration~~various tax jurisdictions.

For the three and six months ended March 31, 2021, the income tax benefit resulted from the relative amounts of ~~certain U.S. federal statutes~~income (loss) recognized in various tax jurisdictions, the utilization of limitations and the effective settlement of an Internal Revenue Service (IRS) audit, $1.7 million of reserves for unrecognized tax benefits related to these matters was released. These benefits were partially offset by losses recognized by various foreign jurisdictionsnet operating loss carryforwards in Canada that ~~were~~have been fully reserved with a valuation ~~allowance. For~~allowance, and the ~~nine months ended June 30, 2020,~~estimated R&D Tax Credit.

We have recorded valuation allowances against the ~~effective tax rate was also negatively impacted by the $0.5 million valuation allowance recorded against our UK~~ deferred tax assets of various foreign jurisdictions as it was determined that it was more-likely-than-not that the deferred tax assets may not be recognized.We maintain a ~~discrete item during~~full valuation allowance on our deferred tax assets until there is sufficient evidence to support the ~~second quarter~~reversal of ~~Fiscal 2020.~~all or some portion of these allowances. However, given our current earnings and anticipated future earnings in Canada, we believe that there is a possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of the Canadian valuation allowance will no longer be needed. A release of the valuation allowance would result in the recognition of certain net deferred tax assets and a decrease to income tax expense for the period the release is recorded. However, the exact timing and amount of the valuation allowance released are subject to change on the basis of the level of profitability that we believe we may be able to achieve.

K. Subsequent Events

Quarterly Dividend Declared

On ~~August~~May 3, ~~2021,~~2022, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $0.26 per share. The dividend is payable on ~~September~~June 15, ~~2021~~2022 to shareholders of record at the close of business on ~~August~~May 18, ~~2021.~~2022.

1918

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 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 subject to the cyclical nature of the end markets that we serve. This has had, and may continue to have, an adverse effect on our future operating results.

•Our industry is highly competitive.

•Technological innovations ~~by competitors~~ 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 involves 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 on some of our projects.

•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), acts of war and terrorism, among others, could disrupt our business.

Risk Factors Related to our Financial Condition and Markets

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

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

•Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations.

•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.

•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.

2019

•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~~fixed-price contracts which subjects us to potential credit risks.

•A significant portion of our revenues may be concentrated among a small number of customers.

•We carry insurance against many potential liabilities, but our management of risk may 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.

•Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately and/or on a timely basis.

•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.

Risk Factors Related to our Common Stock

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

•There can be no assurance that we will declare or 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.

•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.

•Significant developments arising from ~~recent U.S. Government proposals concerning~~ tariffs and other economic proposals could adversely impact our business.

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 effective tax rate and could have a material effect on our financial results.

•The departure of 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 and those expressed in a forward-looking statement made in this report or elsewhere by us or on our behalf 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. We have discussed these factors in more detail in our Annual Report on Form 10-K for the year ended September 30, ~~2020.~~2021. 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.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of 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, ~~2020,~~2021, which was filed with the Securities and Exchange Commission (SEC) on December ~~9, 2020~~8, 2021 and is available on the SEC’s website at www.sec.gov.

Overview

We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment. We are headquartered in Houston, Texas, and serve the oil and gas and petrochemical markets, ~~including~~which include onshore and offshore ~~oil and gas~~ production, ~~petrochemical,~~ liquefied natural gas (LNG) facilities and terminals, ~~pipeline, terminal, mining~~pipelines, refineries and ~~metals,~~petrochemical plants. Additional markets include electric utility and light rail traction power ~~electric utility,~~as well as mining and metals, pulp and paper and other municipal, commercial and 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 and cyclical in nature. Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety 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 ~~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.

Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the level of capital expenditures of our end-user customers as well as prevailing global economic conditions.

~~The~~Historically, the combination of a growing global economy, abundant sources of favorably priced natural gas feedstock, and an energy industry focus on transition to natural gas and cleaner-burning fuels drove an increase in capital investment opportunities, specifically across the oil, gas and petrochemical sectors. Some of these opportunities were for natural gas related projects targeting global demand for cleaner-burning fuels. Additionally, projects within the domestic petrochemical sector benefited from the low feedstock prices of natural gas. Specific to natural gas, the business was awarded a substantial contract in the second quarter of Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic industrial complex and should be substantially completed in Fiscal 2022. ~~However, we~~We began to experience reduced commercial activity in Fiscal 2020 driven in large part by the uncertainties across our industrial end markets in the U.S. resulting from the COVID-19 pandemic. Considering the long cycle nature of our business, ~~we anticipate that~~ these cyclical conditions may persist throughout ~~Fiscal 2021 and into early~~the remainder of Fiscal 2022.

Impact of ~~the COVID-19 Pandemic~~Global Economic Uncertainty and Oil and Gas Commodity Market Volatility on Powell

~~Through~~Various factors resulting in global economic uncertainty have negatively impacted our results over the ~~first nine months of Fiscal 2021,~~last 18 months. In particular, the COVID-19 pandemic continues to impact global energy markets. This pandemic has negatively impacted demand, which in turn has resulted in considerable volatility across global oil and gas commodity markets. The pandemic and global economic uncertainty have had a negative impact on the demand for our products and services as well as our operations ~~have been negatively impacted by COVID-19, resulting from~~as a result of the associated reduction in oil and gas demand and volatility in commodity prices noted above. As a result, some of our industrial customers ~~are deferring~~have deferred or ~~suspending~~suspended their planned capital expenditures. ~~Certain~~During this period, certain of our customers have asked that we delay or cancel our manufacturing on their projects as their operations have been negatively impacted by this pandemic and the reduced oil and gas demand, which has resulted in recognition of cancellation fees based on contract terms and the extent of our progress on the projects. We continue to work with ~~and review the contracts with~~ our key suppliers who ~~have been impacted by this pandemic~~are facing various issues related to the availability and timing of the receipt of key component parts and commodities to ensure that we are able to meet our customer commitments.

In response to the lower demand across select end markets, we have taken and will continue to take various actions to reduce costs. During Fiscal 2020, we reduced our global workforce and ~~reduced~~ our capital and discretionary spending in response to ~~current~~ business conditions. We ~~continue~~continued to operate at these lower thresholds throughout Fiscal 2021 and ~~are~~the first half of Fiscal 2022 and will continue to consistently ~~monitoring~~monitor the macro-economic conditions throughout the remainder of Fiscal ~~2021.~~

2022.

As discussed further under the heading "Outlook" below, it is difficult to predict the economic impact that this pandemic, as well as reduced oil and gas demand, supply chain issues and ~~commodity price volatility,~~inflationary pressures, may have on our business, results of operations and cash flows going forward.

Results of Operations

Quarter Ended ~~June 30, 2021~~March 31, 2022 Compared to the Quarter Ended ~~June 30, 2020~~March 31, 2021 (Unaudited)

Revenue and Gross Profit

Revenues ~~decreased~~increased by 2%8%, or ~~$2.2~~$9.1 million, to ~~$115.8~~$127.9 million in the ~~third~~second quarter of Fiscal ~~2021, due~~2022. Domestic revenues decreased by 1%, or $0.9 million, to a decrease in orders as well as project delays and cancellations of potential projects associated with the global economic impact resulting from the COVID-19 pandemic and associated reduction in demand across our industrial end markets. These cyclical market conditions, which began$87.0 million in the second half of Fiscal 2020, led to a reduction in project bookings and an increase in project delays which have negatively impacted, and will continue to negatively impact, our revenues in Fiscal 2021. Domestic revenues decreased, as noted above, by 3%, or $2.8 million, to $88.4 million in the third quarter of Fiscal ~~2021.~~2022. Included in our domestic revenues in the oil and gas markets is our large domestic industrial project awarded in Fiscal 2020, which accounted for approximately ~~18%~~16% of our consolidated revenues for the ~~third~~second quarter of Fiscal ~~2021~~2022 compared to 9%20% in the same period of the prior year. International revenues increased by ~~$0.6~~33%, or $10.1 million, to ~~$27.4~~$40.9 million in the ~~third~~second quarter of Fiscal ~~2021.~~2022. Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

Revenue from our core oil and gas ~~end~~ markets (excluding petrochemical) increased by 7%, or ~~$3.4~~$3.5 million, to ~~$49.3~~$53.6 million in the ~~third~~second quarter of Fiscal ~~2021,~~2022, while petrochemical revenue ~~decreased~~increased by ~~48%~~85%, or ~~$13.9~~$8.7 million, to ~~$15.4~~$18.9 million in the ~~third~~second quarter of Fiscal ~~2021,~~2022, primarily due to ~~the uncertainty across our industrial end markets.~~project mix. Revenue from our utility markets increased by ~~57%~~7%, or ~~$9.5~~$1.9 million, to ~~$26.2~~$30.4 million, and traction market revenue ~~increased~~decreased by ~~52%~~34%, or ~~$4.7~~$5.1 million, to ~~$13.8~~$10.1 million in the ~~third~~second quarter of Fiscal ~~2021.~~2022. Revenue from all other markets combined ~~decreased~~increased by ~~$5.9~~$0.2 million to ~~$11.2~~$14.9 million in the ~~third~~second quarter of Fiscal ~~2021.~~2022.

~~The reduction in revenue led to a subsequent reduction in gross~~Gross profit ~~decreasing~~increased by ~~20%~~11%, or ~~$4.2~~$1.9 million, to ~~$17.2~~$19.1 million for the ~~third~~second quarter of Fiscal ~~2021.~~2022. Gross profit as a percentage of revenues ~~decreased~~increased to 15% in the ~~third~~second quarter of Fiscal ~~2021,~~2022, compared to ~~18%~~14% in the ~~third~~second quarter of Fiscal ~~2020.~~2021. The ~~reduction~~increase in gross profit ~~as a percentage of revenues~~ was driven predominately by ~~increasing commodity costs, facility under-utilization driven~~increased volume and operating efficiencies across most of our North American operations and improved project execution and performance from our UK operations in the second quarter of Fiscal 2022. This incremental increase in gross profit incorporates favorable productivity and pricing impacts, offset by ~~lower revenues and increased employee benefit costs.~~inflationary pressures across our supply base.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 8%2%, or ~~$1.2~~$0.4 million, to ~~$16.7~~$17.1 million in the ~~third~~second quarter of Fiscal ~~2021, driven by~~2022, primarily due to increased ~~employee benefit costs in the third quarter of Fiscal 2021. In the third quarter of Fiscal 2020, employee benefit costs and travel-related expenses were lower as a result of the COVID-19 pandemic.~~bad debt expense. Selling, general and administrative expenses as a percentage of revenues ~~was 14% during the third quarter of Fiscal 2021 compared~~decreased to 13% during the ~~third~~second quarter of Fiscal ~~2020, primarily due~~2022 compared to 14% during the ~~decrease in revenue.~~

~~Restructuring and Other, Net~~

~~In the third~~second quarter of Fiscal ~~2020, as~~2021.

Other Income

We recorded other income of $0.3 million in the second quarter of Fiscal 2022 related to a ~~result~~gain on the sale of land. We did not record other income during the ~~COVID-19 pandemic, reductions in oil and gas demand and volatility~~second quarter of ~~commodity prices, we implemented workforce reductions across the business and recorded $1.4 million of separation costs.~~Fiscal 2021.

Income Tax ~~Provision/Benefit~~Benefit/Provision

We recorded an income tax provision of ~~$0.7~~$1.8 million in the ~~third~~second quarter of Fiscal ~~2021,~~2022, compared to an income tax benefit of ~~$0.6~~$0.9 million in the ~~third~~second quarter of Fiscal ~~2020.~~2021. The effective tax rate for the ~~third~~second quarter of Fiscal ~~2021~~2022 was ~~negative 53%~~305%, compared to an effective tax rate of ~~negative 19%~~81% in the ~~third~~second quarter of Fiscal ~~2020.~~2021. For the three months ended ~~June 30, 2021,~~March 31, 2022, the effective tax rate was negatively impacted by ~~our inability to recognize a tax benefit related to losses in the United Kingdom and~~ the change in the annual estimated relative amounts of ~~income/loss~~income (loss) recognized in the various tax jurisdictions. The ~~estimated Research and Development Tax Credit (R&D Tax Credit) and the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a~~ tax ~~benefit for the three months ended June 30, 2021 and 2020. Additionally,~~provision recorded in the ~~third~~second quarter of Fiscal ~~2020, we recognized a benefit primarily~~2022 resulted from ~~the settlement of~~ an ~~Internal Revenue Service (IRS) audit for $1.7 million.~~increase in forecasted pre-tax income.

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Net ~~Income/~~Loss

In the ~~third~~second quarter of Fiscal ~~2021,~~2022, we recorded a net loss of ~~$2.0~~$1.2 million, or ~~a loss of $0.17~~$0.10 per diluted share, compared to a net ~~income~~loss of ~~$3.5~~$0.2 million, or ~~$0.30~~$0.02 per diluted share, in the ~~third~~second quarter of Fiscal ~~2020.~~2021. This ~~decrease~~increase in net loss is ~~attributable~~primarily due to ~~lower revenues and~~ the ~~associated negative operating leverage in the third fiscal quarter of 2021 versus the prior year as well as increasing commodity costs~~provision for ~~both copper and steel.~~income taxes resulting from applying an estimated annual effective tax rate to year-to-date ordinary pre-tax income (loss).

Backlog

The order backlog at ~~June 30,~~March 31, 2022 was $440.0 million, an increase of 6% from $416.0 million at December 31, 2021 ~~was $425.5 million,~~and a ~~decrease of 3%~~slight increase from $436.6 million at March 31, ~~2021 and a decrease of 20% from $532.2 million of backlog at June 30, 2020.~~2021. Bookings, net of cancellations and scope reductions, increased by ~~27%~~70% in the ~~third~~second quarter of Fiscal 2022 to $150.8 million, compared to $88.5 million in the second quarter of Fiscal 2021, ~~to $103.2 million, compared to $81.4 million in the third quarter~~primarily driven by activity outside of ~~Fiscal 2020.~~our oil and gas and petrochemical sectors.

~~Nine~~

Six Months Ended ~~June 30, 2021~~March 31, 2022 Compared to the ~~Nine~~Six Months Ended ~~June 30, 2020~~March 31, 2021 (Unaudited)

Revenue and Gross Profit

Revenues ~~decreased~~increased by ~~16%~~4%, or ~~$62.7~~$9.1 million, to ~~$341.1~~$234.4 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022. Revenues continue to be negatively impacted due to ~~a decrease in orders as well as~~ project delays and cancellations of potential projects associated with the global economic impact resulting from the COVID-19 pandemic and associated reduction in demand across our industrial end markets. Domestic revenues ~~decreased by 19%, or $61.3 million,~~increased slightly to ~~$256.9~~$169.1 million in the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. International revenues ~~decreased~~increased by 2%15.0%, or ~~$1.4~~$8.5 million, to ~~$84.2~~$65.3 million. Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

Revenue from our core oil and gas markets ~~decreased~~(excluding petrochemical) increased by ~~12%~~7%, or ~~$18.4~~$6.5 million, to ~~$139.4~~$96.7 million in the ~~nine~~six months ended ~~June 30, 2021. Petrochemical~~March 31, 2022, while petrochemical revenue ~~decreased~~increased by ~~68%~~86%, or ~~$72.3~~$16.7 million, to ~~$34.7~~$36.1 million in the ~~nine months ended June 30, 2021.~~first half of Fiscal 2022, primarily due to project mix. Revenue from our utility markets ~~increased~~decreased by ~~29%~~8%, or ~~$18.8~~$4.7 million, to ~~$82.8~~$51.9 million, and traction market revenue ~~increased~~decreased by ~~35%~~25%, or ~~$10.9~~$7.1 million, to ~~$42.3~~$21.4 million in the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022. Revenue from all other markets combined decreased by 4%7%, or ~~$1.7~~$2.3 million, to ~~$41.8~~$28.3 million in the ~~nine~~six months ended ~~June 30, 2021.~~March 31, 2022.

~~The reduction in revenue led to a reduction in gross~~Gross profit ~~of 28%~~decreased by 8%, or ~~$20.3~~$2.9 million, to $32.5 million as compared to the first ~~nine months~~half of Fiscal ~~2020. However,~~2021. The decrease in gross profit of $52.6 million for the first nine months of Fiscal 2021 benefited from favorable close out gains on certain projects resulting from cost and productivity efficiencies and to a lesser extent from cancellation fees from certain contracts in our North American manufacturing facilities, which was ~~partially offset~~driven predominately by higher ~~commodity prices and factory underutilization.~~direct material costs. Gross profit ~~as a percentage of revenues decreased~~may continue to ~~15% in~~be negatively impacted by higher material costs to the ~~nine months ended June 30, 2021, compared~~extent we are not able to ~~18% in the nine months ended June 30, 2020 as a result of the reduction in revenue noted above.~~pass these increases to our customers.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by 2%, or ~~$1.1~~$0.6 million, to ~~$50.3~~$33.0 million in the ~~nine~~six months ended ~~June 30, 2021, partially~~March 31, 2022, primarily due to ~~the restructuring action taken in the third quarter of Fiscal 2020 as well as lower travel-related costs.~~decreased variable incentive compensation. Selling, general and administrative expenses as a percentage of revenues ~~increased~~decreased to 14% during the six months ended March 31, 2022 compared to 15% during the ~~nine~~six months ended ~~June 30, 2021, compared~~March 31, 2021.

Other Income

We recorded other income of $0.3 million in the six months ended March 31, 2022 related to ~~13%~~a gain on the sale of land. We did not record other income during the ~~nine~~six months ended ~~June 30, 2020, primarily due to the decrease in revenues.~~

~~Restructuring and Other, Net~~

In response to the COVID-19 pandemic, reductions in oil and gas demand and volatility of commodity prices, we implemented workforce reductions across the business. As a result, we recorded $1.4 million of separation costs during the third quarter of Fiscal 2020.March 31, 2021.

Income Tax ~~Provision/Benefit~~Benefit/Provision

We recorded an income tax ~~benefit~~provision of ~~$0.1~~$0.4 million in the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, compared to an income tax ~~provision~~benefit of ~~$2.1~~$0.8 million in the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. The effective tax rate for the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 was 5%negative 10%, compared to an effective tax rate of ~~13%~~59% for the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021. For the ~~nine~~six months ended ~~June 30, 2021 and 2020,~~March 31, 2022, the effective tax rate was negatively impacted by ~~our inability to recognize a tax benefit related to losses~~the change in the ~~United Kingdom and the~~annual estimated relative amounts of ~~income/loss~~income (loss) recognized in the various tax jurisdictions. The effective tax rate was favorably impacted by the estimated R&D Tax Credit ~~as well as~~and the projected utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance ~~provided a tax benefit for~~in the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and 2021.

Net ~~Income/~~Loss

In the ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, we recorded a net loss of ~~$2.6~~$4.1 million, or ~~a loss of $0.22~~$0.34 per diluted share, compared to a net ~~income~~loss of ~~$13.7~~$0.6 million, or ~~$1.17~~$0.05 per diluted share, in the ~~nine~~six months ended ~~June 30, 2020, primarily~~March 31, 2021. This increase in net loss is due to a decline in ~~revenues and~~ gross profit ~~resulting from lower orders and project delays caused by the economic impact resulting from the COVID-19 pandemic and the associated reduction in global demand across our industrial end markets.~~as discussed above.

Backlog

The order backlog at ~~June 30, 2021~~March 31, 2022 was ~~$425.5~~$440.0 million, ~~a decrease~~an increase of ~~11%~~6% from ~~$476.8~~$414.9 million at September 30, ~~2020.~~2021. Bookings, net of cancellations and scope reductions, ~~decreased~~increased by ~~46%~~44% during the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 to ~~$282.9~~$258.5 million, compared to ~~$519.5~~$179.6 million in the ~~nine~~six months ended ~~June 30, 2020. The decrease in bookings was primarily due to the large contract awarded in the second quarter of Fiscal 2020 and decreased global demand across our industrial end markets.~~March 31, 2021.

Outlook

As noted in "Overview" above, the markets in which we participate are capital-intensive and cyclical in nature. A significant portion of our revenues has historically been from the oil, gas and petrochemical markets. Oil and gas commodity price levels have been unstable over the last several years, and our customers have in certain cases delayed or cancelled some of their major capital investment projects. Beginning in late Fiscal 2018 through the first quarter of Fiscal 2020, our customers' decisions to invest in projects in our key oil and gas and petrochemical markets were influenced to some extent by relative stabilization of commodity prices and theRecently we have seen increased global demand for cleaner-burning ~~fuels during that period of time. We believe that this change in market sentiment during that period of time had a favorable impact on our orders and backlog entering Fiscal 2020. However,~~fuels; however, the uncertainty in oil prices and the global economic impacts from COVID-19, ~~have had,~~including supply chain disruptions and associated inflationary pressures, as well as other geopolitical events may ~~continue to~~ have a negative impact on our business going forward, as discussed in more detail below. Specific to the energy industry focus on transitioning to natural gas and cleaner-burning fuels, the business was awarded a substantial contract in Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic industrial complex and should be substantially completed in Fiscal 2022.

Our operating results are 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 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 as well due to the reduction in availability and uncertainty in the timing of 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. The strong commercial activity and subsequent orders in Fiscal 2018 and 2019 led~~costs, or inhibit our ability to ~~solid revenue and operating results for Fiscal 2020.~~deliver completed products on time. We ~~began to experience~~experienced lower commercial activity in Fiscal 2020 and Fiscal 2021 driven in large part from the uncertainty resulting from the COVID-19 pandemic, as discussed in "Overview" above. Considering the long cycle nature of our business, we anticipate these cyclical conditions may persist throughout ~~Fiscal 2021 and into early~~the remainder of Fiscal 2022. We will continue to ~~monitor~~remain focused on the variables that impact our markets ~~while adjusting~~as well as cost management, labor and supply chain challenges. We will also continue to adjust to the global conditions in order to maintain competitive cost and technological advantages in the markets that we serve.

The consequences of a prolonged economic decline could include, but are not limited to, a continued reduction in commercial and industrial activity. ~~Accordingly, the~~The Company cannot reasonably estimate the duration or severity of ~~this pandemic,~~these global economic challenges, or the extent to which the ~~disruption~~resulting disruptions may materially impact our business, results of operations or cash flows. We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments.

Liquidity and Capital Resources

As of ~~June 30, 2021,~~March 31, 2022, current assets exceeded current liabilities by ~~2.7 times, and our debt to total capitalization was 0.13%.~~2.3 times.

Cash, cash equivalents and short-term investments decreased to ~~$128.8~~$113.6 million at ~~June 30, 2021,~~March 31, 2022, compared to ~~$178.9~~$134.0 million at September 30, ~~2020.~~2021. This decrease in cash was primarily driven by increases in each of accounts receivable and inventory. We have strategically increased certain inventories due to uncertainty from the ~~timing of contract billing milestones.~~global supply chain issues impacting our business. 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, research and development initiatives and debt repayments for the foreseeable future.

We have a credit agreement with Bank of America, N.A. ~~(the~~(as amended, the "U.S. Revolver") which is a $75.0 million revolving credit facility available for both borrowings and letters of credit and expires September 27, 2024. ~~On March 12, 2021, we entered into a first amendment to the~~The U.S. Revolver ~~which, among other things, amended certain terms related to the calculation of the consolidated leverage ratio from gross leverage to net leverage. As a result of the first amendment,~~states that up to $30 million 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. Additionally, 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.

On October 1, 2021, our industrial development revenue bonds matured and as a result we had no long-term debt at March 31, 2022. As of ~~June 30, 2021,~~March 31, 2022, there were no amounts borrowed under the U.S. Revolver, and letters of credit outstanding were ~~$39.9~~$32.2 million. As of ~~June 30, 2021, $35.1~~March 31, 2022, $42.8 million was available for the issuance of letters of credit and borrowing under the U.S. Revolver. ~~Total long-term debt, including current maturities, totaled $0.4 million at June 30, 2021 related to outstanding industrial development revenue bonds.~~ 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. For further information regarding our debt, see Notes E and F of Notes to Condensed Consolidated Financial Statements.

Approximately ~~$27.9~~$30.4 million of our cash, cash equivalents and short-term investments at ~~June 30, 2021~~March 31, 2022 was held outside of the 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., we may incur additional tax expense upon such repatriation under current tax laws.

Operating Activities

Operating activities used ~~$39.7~~net cash of $13.0 million during the ~~nine~~six months ended ~~June 30, 2021~~March 31, 2022 and ~~provided $53.4~~$18.1 million during the same period in Fiscal ~~2020.~~2021. Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the payment terms with our suppliers. This ~~decrease~~increase in operating cash flow was primarily due to the timing of contract billing ~~milestones.~~milestones although slightly offset by the increase in accounts receivable. The strategic increase in inventory as a result of the uncertainty in the global supply chain negatively impacted cash flow for the first six months of Fiscal 2022.

Investing Activities

Investing activities used ~~$2.0~~$7.6 million during the ~~nine~~six months ended ~~June 30, 2021 compared to $5.5~~March 31, 2022 and $1.2 million ~~used~~ during the same period in Fiscal ~~2020.~~2021. The ~~decrease~~increase in cash used byin investing activities in the first ~~nine~~six months of Fiscal ~~2021~~2022 was primarily due to ~~a decrease in capital expenditures. Additionally, the proceeds received from a Company-owned life insurance policy related to a retired employee provided investing cash flow in Fiscal 2021.~~short-term investment activity.

Financing Activities

Net cash used in financing activities was ~~$10.1~~$7.2 million during ~~each of~~ the ~~nine~~six months ended ~~June 30,~~March 31, 2022 and $7.1 million during the same period in Fiscal 2021, ~~and 2020,~~ which primarily consisted of approximately ~~$9.1~~$6.1 million of dividends paid in each period.

~~New Accounting Standards~~

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

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 management 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, ~~2020,~~2021, which was filed with the SEC on December ~~9, 2020.~~8, 2021.

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 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 are typically in the oil and gas and petrochemical markets, ~~including~~which include onshore and offshore ~~oil~~production, LNG facilities and ~~gas production, pipeline, refining~~terminals, pipelines, refineries and ~~liquefied natural gas terminals, as well as~~ petrochemical plants. Additional markets include electric utility and light rail traction ~~power.~~power as well as mining and metals, pulp and paper and other municipal, commercial and industrial 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 profit margin. While we may do so in the future, we have not currently entered into any derivative contracts to 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 Mexican Peso 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 loss, a component of stockholders’ equity in our 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 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 ~~nine~~six months ended ~~June 30, 2021,~~March 31, 2022, our realized foreign exchange ~~loss~~gain was ~~$0.2~~less than $0.1 million and is included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was ~~$18.0~~$19.4 million as of ~~June 30, 2021,~~March 31, 2022, a decrease of ~~$6.5~~$1.0 million compared to September 30, ~~2020.~~2021. 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 the foreign operations of those divisions.

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

Interest Rate Risk

If we borrow under our 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 to 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.

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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 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.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, ~~2020,~~2021, which was filed with the SEC on December ~~9, 2020.~~8, 2021.

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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).

3.3	—	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).

*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	—	The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in Inline ~~XBRL Instance Document~~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~~	—	~~Inline XBRL Taxonomy Extension Schema Document~~

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

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

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

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

*104	—	~~Cover Page Interactive Data File (the~~The cover page ~~XBRL tags are embedded~~from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, formatted in ~~the~~ Inline XBRL ~~document)~~(included as Exhibit 101).

* Filed herewith
** Furnished herewith

3029

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: ~~August~~May 4, ~~2021~~2022	By:	/s/ Brett A. Cope
		Brett A. Cope
		President and Chief Executive Officer
		(Principal Executive Officer)

Date: ~~August~~May 4, ~~2021~~2022	By:	/s/ Michael W. Metcalf
		Michael W. Metcalf
		Executive Vice President
		Chief Financial Officer
		(Principal Financial Officer)

3130


			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 Income (Loss) (Unaudited)			5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited)			6
Condensed Consolidated Statements of Cash Flows (Unaudited)			87
Notes to Condensed Consolidated Financial Statements (Unaudited)			98
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			2221
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2726
Item 4. Controls and Procedures			2726

Part II — Other Information			2928
Item 1. Legal Proceedings			2928
Item 1A. Risk Factors			2928
Item 6. Exhibits			3029
Signatures			3130