POWL - Earnings call transcript Q1 2020

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Operator

Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would like to turn the conference over to your host, Zach Vaughan of Dennard Lascar Investor Relations. you. Thank

begin. may You

Zach Vaughan

the and Powell everyone. to Industries first Mike me year operator, Chairman Cope, joining CEO; and review appreciate us XXXX and on With results. for conference Powell’s quarter are good you, Brett We Powell’s CFO. morning, Metcalf, you fiscal call Thank call today

available webcast The a replay the Company’s to on a be and telephonic will access was going will today’s call the XXth. it provided earnings powellind.com by or until will how to There in of be information release. replay be available February via replay webcast yesterday’s

Please time note and as therefore, on replay reading. transcript of be information call XXXX, of that advised speaks longer any time-sensitive listening or that only information reported you’re may X, the today, at February no this accurate

includes materially economic those international, and actual Act competition differ raw XXXX. of not of This economic strategies. may competitive availability results execution operating including risks meaning of Securities to, statements business statements. its statements that forward-looking to to include, the statements but from the and conditions; may projected are limited forward-looking and statements in and sensitivity and cautioned price pressures; These and that of expectations involve results uncertainties industry the within of certain risks general and Private conference Investors these Reform uncertainties call are Company’s that future risks; political, materials; and such be forward-looking considered related Litigation

the and please For Exchange to with Commission. refer more Securities the filings company’s information,

call Powell’s Cope. the Brett to Brett? Now, turn over I’ll CEO,

Brett Cope

results. us and XXXX today we take everyone. a morning, good fiscal you before will I for questions. commentary to quarter the financial then turn over I will Powell’s review comments call to make more and joining your for few first Zach, you, Mike Thank Thank

share some has quarter fiscal about an general providing conference I’ll been the and I’ll overview current of short year-end time our our XXXX markets. it since focus then Since a only call, on observations

of with quarters in quarter revenue our are one throughout results, lighter our our is that We for particularly year. pleased first a quarter fiscal

on through quarter was As our period. hours calendar impacted from work several mentioned we call, fiscal the year holiday of end by reduced XXXX last seasonality, the first

$XXX XX% From than perspective, the first quarter, XXXX. which increased fiscal a million quarter of revenues in year-over-year higher was first

disciplined new Additionally, quality a net as income the supply the of continued million in the that productivity, and $X.X across reported prior we million. and initiatives robust commercial and operating loss actions focus efficiencies backlog effectively. include, operational in ongoing improved We many of year of to financial this efficiently These from quarter have $X.X approach attribute mix SG&A to been business and and for time. cost net chain the and structure the our our pursue improvement a some orders, managing a on

timing a project As manufacturing decline when quarter as fiscal process well to first the result as fewer quarter of closeouts and sequentially reflects revenue XXXX, facilities. in seasonal compared impact the the of our of across fourth projects the

of million quarter. in new booked orders orders an From $XXX perspective, Powell the

Canadian Our be contract, a being notable over operation executed municipal awarded three-year a win, large had period. which a can

million number on we’re for starting a quarters, that new for pushing being recently, with see are to range. More support of midsized in has out resources During projects active projects. customers activity efforts of larger our last growing amount schedules $XX our of estimating the inquiry the been $X several focused million to few a bookings to

of are XXXX. our fill months, XX into the These projects second capacity to XX pillars open to have revenue our helped past XXXX. midsized of we model half in half these work the midsized important projects as first the growth and through business support of Over XXXX

of project funnel As low-priced calls, I Gulf prior region. gas and the active, activity have driven in Coast by natural particularly abundant supported the remains noted in

persistence This constructed rooms design, and testing in award industrial support distribution quarter people for We custom will Powell’s quality, will span be United project. product included over a in complex resulted integrated manufacture, that the as in fiscal the our and of of orders integration States. large project multiple deliver report of reporting. solution years backlog power and are three Powell supporting order being build a a to electrical control pleased second and we the substantial in design, contract This

international to fiscal quarter compared prior the recovery notably of XXXX. first show at and of when Backlog divisions our our XXXX positive was the continue operations versus signs end higher, UK year. Powell’s supporting of Canadian to

As and retaining and recruiting challenge labor an operational in through be XXXX market. XXXX, fiscal into high-quality largest will tight we navigate labor already direct our

We to engaging manufacturing independent overtime capacity actively are leveraging global shifting contractors, to locations balance supply utilizing also an work and our and footprint, economic viable. chain when

XXXX, drive fiscal our We while throughout the Powell we to improved of in customer fiscal technology and fulfillment committed sustainable investments programs, are optimistic development in margins will be that our and development continues remain to actions during manufacture increasing and initiatives tactical intend professional electrical products distribution to the solutions. and these investments a people maintaining of and strategic XXXX. in leader R&D

ensure we existing around we directly portfolio impacts Therefore, engagement base. employee continue investing improvements employee to products retention. have continued and training satisfaction believe know are broad development. customer Likewise, we and and actively to satisfaction We in and client offer to our our new a will success

on immediate our in XXXX. open second fiscal are summary, In efforts filling of half capacity focused the

midsized projects core customer As our we monitor and timelines increasing in adjust end markets. from to of delays

project to Therefore, production deliver the that rewards optimistic of remain XXXX. revenue second for preparing to fiscal we small continue the for half as backlog the to more XXXX. of base, is will capacity also cautiously most significant XXXX our results on be on of we midsize a project longer-term larger after lumpy current than recent we deliver our in from derived usual to our expect execute our As while portion

call our to detail questions. Mike I’ll more around your to provide that, results turn over financial we before With take the

Mike Metcalf

we Thank or same you, the year. million, prior in Brett, net morning, XX% fiscal of period of the the million reported XXXX, revenue everyone. quarter versus $XXX increase $XX and good In a first

first $XXX million million ratio, in quarter million, X.X first was versus the quarter the ending quarter. increase in $X book-to-bill all were for fit which Bookings a fiscal which a $XXX quarterly backlog, prior was

industrial XX% domestic in results experienced gas, up utility demand. Compared to year driven the across by year XX% year-over-year having and market increase a or sectors We of with to increased and million substantial impact with and the prior while revenue most value ago, up over XX% XX%. one oil, a part revenues business $XX million increased in large most healthy favorable was the period, by performance petrochemical on $XXX the the traction sectors

a in operating is globally. as increased points well increased to Compared from period This as of of year million as same across compared locations, our revenues million and first driven mix well improved domestic quarter fiscal in XX% fiscal ago, to export in improvement the Gross as first $X versus the our first to one $XX XXXX. Gross of ago. facilities, a $XX percentage quarter international favorable year revenues, to project the of XXXX. the operations quarter $X to XXX million higher the shipments basis by from million leverage foreign generated profit by most our quarter by volume profit both first as XXXX of

Selling, million current million higher $X the the a general year quarter, were administrative expenses same and $XX by in period versus ago.

XXXX, $X.X revenue loss quarter net XX% or fiscal as decreased the of in XXX the of percentage the versus the reported $.XX to first first we basis of points by of of of share XXXX. income However, last to fiscal $X.X compared year. share In quarter $X.XX net revenues, loss a same or quarter million million period SG&A per a in per fiscal a first

generated XQ we the a in by our by in prior And of position quarter first cash in equipment was lower the plant Year-over-year, contract in was million. net operating asset flow. fiscal quarter million, free-cash property, investments In flow of reduction the liabilities of $X and $X million driven fiscal year. the during and $X XXXX,

of ago maturities, than the our quarter, of fiscal debt, cash lower our $XXX,XXX. than Long-term term $XX we At million, million end year million position. was investments $XXX short current including $X in was year-end higher a and XXXX first had which

work ahead quarterly landscape, Looking markets. this, our utilize Considering the larger full gas, midsized the to to bill continue by fiscal softening and driven capacity for across the year our XXXX. we We half order to project of projects for variability anticipate do of activity both the opportunities fiscal on petrochemical XXXX second in well as the timing XXXX. as smaller to inquiry throughout fiscal our projects, book the across plant and end oil,

will Powell our previously, mentioned the generated a impact and our be revenue of in a this majority XXXX. XXXX project rooms the fiscal tested Brett project that material with orders fiscal this do multiple larger integrated, the that revenue to anticipate order have XXXX control respect of will period We margin. not on will With power specific and months approximately and XX designed, manufacture across for

present market that investment, research our the and planned in our we profitable considering Overall, as development year reaffirm successful the ramp-up and level current for fiscal backlog, a will expectations of be XXXX the Company. activity as well

At your be questions. answer this we’ll happy to point,

Operator

your John Franzreb question. comes line proceed Instructions] you. of first Thank Please Our question [Operator from the with Sidoti. with

John Franzreb

gross how it the margin? labor a the jobs the becoming on Good drop kind How I’d an sequential the much much that talk and Brett. it’s was margin seasonality, the know, referenced on, in about weak pricing basis. was to with how issue? of a was it much Could higher it start seasonally morning, that executed costs you Mike quarter. I you just and like in gross

Mike Metcalf

pipeline. that as more last execute bear in versus don’t our take a those projected the look the have you to we ‘XX, at through Thanksgiving last our seasonality would in best John, resources pricing five favorable this through year resources variable a our and up holidays need XQ perspective. slightly of ‘XX, this holidays, any been of And in one. under-absorption That ramping mind years. we that sequentially Mike. you have flat. pronounced. second ‘XX, this, half XQ XQ. XQ. backlog see actually you and XQ backlog of that is was I But, pricing carried we remind XQ was are the the in given We Yes. to the we the XQ half that second And given said, more Project impact I’ll margins Christmas our generated XXXX ‘XX was -- time our over from

John Franzreb

be? to a was ramp add-on your about you it in total I was actually I Could was I What looks your little surprised, And projecting, way. spend little how R&D CapEx R&D now? expect lower year than that to budget year? for bit a put you the full And that, the tally guess to spend that XXXX, talk this

Brett Cope

Brett. it’s John,

think last We’re major on plans of still to in second for executing look throughout temporary. now. to it’s had our but projects committed plan We’ve various of put And the get those. and ramp-up a some We the developing we started right on committed and around year we side. back a reasons the that quarter little clear of to slow start strategic pause the one got still product place in to kind in our plans,

terms year, in X% looking give still A we’re is CapEx best trying and half major this what evaluating in year-over-year, understand the take. but them our On them roughly of for about them. to projects the no opportunity of at or rate considering the back and run of change we’re couple revenues, of side,

John Franzreb

R&D So, side that Brett, would at is high or to year, for a point? million $X be going good be number in this the this

Brett Cope

the the come pipeline lot testing, which more to and the we bit of The little gear understand labs once developed be the color a the lot of our a get switch we a approved on want get get electrical to giving quarter quick and really we side, importantly a get standards. this money cost where tested that the I’ll on is costs be R&D how decision into to Might but next you through high the better to products side.

of in little this fiscal. suspect, timing that the all So, is but I a mean spent

Operator

Please Securities. next from question. with with question Our the of your CJS comes line Jon Tanwanteng proceed

Jon Tanwanteng

my morning, Thank for you gentlemen. Good taking questions.

least what just First current it, of the profile margin order all, being on I at willing booked. the large size if was you’re to and that, is, of wondering congrats of the ballpark? disclose or that the

Brett Cope

It’s Josh. Brett. Hey,

of my $XXX contracts, So, million. know, as as in with this It’s in terms pricing. been of quarters in our you of of of well. in the can most what job it’s of the is line have them, comments tell But, running of last terms competitive. don’t a I strong U.S. terms market does excess I ordinary pretty you, quarterly out lot couple we’ve in being and gas-driven, confidentialities, the think of

Jon Tanwanteng

then, just have how starts projects you’re fill to the in many to your handle Great. like And capability more this in of tracking terms factories? it as and

Brett Cope

projects working our to of fundamentals still final and There track. with But, We’ve of the Again, folks, now, couple we’re investments John’s it’s of to are estimated way. of facility number we side some there cost through but headed. feel question to lot for ones resources support tracking, than that that additional we the good that for to environment. we of the there where comes more a and But, we’re just facilities a next out not And capacity do on in standpoint. the the XX our the opportunity capacity. earlier a would like handle months one some watching handle are the macro we’re be the questions. continue from CapEx product some anything and can those got a that XX gas, right

Jon Tanwanteng

you. the specific? were And where that projects on to can pushed for fell Got any that the were and When of anything citing number right mentioning kind you your to actually talk the midsized they then, of they are you down clients, describe also, there projects the to calendar? into And is that happening? pushed it. you Thank that just fundamental be out, reason

Mike Metcalf

lot companies still little the watching real other in macro no. number. pause. There people, talking we’re for well terms a term. having is changing. things the be already The as a an a going is seems demand of to It space. a no to bit, Oil’s driver. down reason, sort I’ve of But, of our the effect. been on as macro months that Well, in are Consensus are few seems fundamental short last be

there long-term is in experiencing reason space, seem that the to be right operate now. there clearly market that So, doesn’t it, us this a some and but in for something are others

Jon Tanwanteng

up, you it. shape million in the getting of year year-end in year to is to see going to Okay. that you to what And given of much U.S. year, $XXX call straight uncertainty, saw from kind to $XXX it way Got then, a had this shot million more the terms pretty Are number? lumpiness this you in revenue. going last compared terms of last

Mike Metcalf

Yes.

I It the the still half, fill for I now alluded it’s utilize think, about answer capacity. is get to book a really that inquiry late pipeline is to probably that plant as second what -- XQ Jon. seeing mean, shape with think, And and I and try softness we’re bill we in yes, we’re as choppier. talking the levels. volume to the will XQ, little be taking to, that Brett in the

Jon Tanwanteng

exiting that was to How on And QX. just, final much it. the this year? scheduled liquidate backlog one Got Okay. one of

Mike Metcalf

Probably of about it. two-thirds

Jon Tanwanteng

great. Okay,

more one question. Sorry,

taking large year, ‘XX to and more place ‘XX it biased the in any over XX months project specific mentioned ‘XX. in ‘XX? or You Is

Mike Metcalf

-- Yes. into it between will now, Jon. That’s still a little defined, we But, be get I mean, the project, further to definitely be that clear. as ‘XX. ‘XX, But, it’s right will

Jon Tanwanteng

you. Okay. Thank

Operator

question. City line of your Please with proceed Our from the next Jon Kansas Braatz Capital. question with comes

Jon Braatz

corporate to evolve markets, at Can can sort how a release, out you to you how nature begin bit cyclicality of of offset talk press on, want commercial two corporate you working commercial your end much sort cyclical the it drive in you -- the Brett, leveraging help you’re what period, the little about talk to the core level? of you pipeline about, those of the can three-year over think pipeline, the and a commercial markets.

Brett Cope

to Well, you going the asked two by core… years, predominantly to time Jon, think for frame still about, I next we’re driven the three be the

Jon Braatz

Okay.

Brett Cope

Oil, gas, petrochemical market.

the downturn some a and sustained to organic have back If expansion, geographic historically look as during as the we things where process. methodically couple years area ago, on Canada, I’m have the continued that of East years, well an did on a last last the footprint, didn’t pick we R&D of over going you couple we, side, of

has more access Some transmission what well call underscored as of those the as general to our product commercial markets. commercial I’ll generation development utility,

do just of done our Canada, these Now, in is that but product the to of here. I world, there access to learned, to channels. things some we’ve the on a two of side. parts here part go continue that building to those think, One cycles is room what is also we’ve there East start continue

-- can to voltage not all come bottom the industrial the the can’t chase in the going with on I being we world But, some that’s I -- in every the So, we over think space today built pipeline. the voltage I can or I want medium than that we tell markets industrial there and that to we’re within low you am space -- today as are of of better that building. and do in have products develop building the even underscored by doing

Jon Braatz

that investment going markets? -- us? require a level marketing reach different sales new it require an a to Is or different those Will to additional of for

Brett Cope

handle the as we’re channel we’ve last is to then, an on that And as about model, a adding we’re that conversation group. Definitely, a accelerate couple something at that definitely Board, is it? management working from the sales years We opportunity channel It of into having. is here talking far direct Powell. and Yes. actively suffered growing been do our the that have group something to historical

Operator

with your proceed [Operator Franzreb comes question. Sidoti. line from question next the Instructions] John Please with Our of

John Franzreb

not product to doing? a something What that your smaller your is what business R&D reach Mike, of some your lot little tangential you into buying of opportunity are about I kind they what you’re may to were assets about pipeline, than I today thoughts into expand year exactly maybe a maybe the another do. close to some the M&A. core, but are ago. Yes. a you’re core that pricing but better that talk assets money the putting I know bit imagine extend to of wanted just

Mike Metcalf

is, answer we points. capital tribute sheet a it’s leverage that guess, a allocation and maintaining the very balance strong important Us I’d from with minimal very John I that, few perspective, is value. way Yes. a a

capital allocation part assess maintenance as to enables a of But, of us. important business then, point, spoke arises our is tuck-in Secondly, through R&D Brett it being to that previously. balance an really the And third of your sheet that an we as investment, framework. of big inorganically, is to strength if all accretive we’re the ears. certainly grow utmost opportunity

Operator

you. Thank

reached the Cope, question-and-answer have the turn We back the to for end would I you Mr. closing now like session. over comments. floor of to

Brett Cope

pleased are Overall, effects Christine. you, first quarter we of Thank despite our performance. with the seasonality,

the well, our last Over are executing prudently, successfully teams quarters, meeting several growing the and our operation of backlog. challenge

near-term quarter. their slightly Powell’s our continued customers of of value to of recent and interest Powell large by and more support with forward our you remainder next project the of the look for your partners supplier for facilities like awards. thank and our sustained continued as become I our evidenced appreciate While XXXX and demonstrated has speaking to our We strength Powell. and in people, would world-class challenging fiscal trust valued products planning, visibility value proposition, projects midsized again have

Operator

conference. today's conclude does this gentlemen, and Ladies

lines your have day. this may a for at Thank time. your participation. you You disconnect wonderful And

Powell Industries (POWL) 5 Feb 202020 Q1 Earnings call transcript