POWL - Earnings call transcript Q3 2021

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Operator

Welcome to the Powell Industries Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Ryan Coleman of Investor Relations. may you and you, begin. Thank

Ryan Coleman

strategies. pressures; price risks business execution industry competitive risks; availability involve replay the and and Act economic its include, future results These materials; Securities including may statements will are provided statements replay of results. available conditions; good meaning website, Thank and to CFO. statements of the the expectations note not in powellind.com, and statements. Powell's joining you're fiscal Chairman available earnings this webcast to, no Thank the XX. There of that international, statements, quarter for longer only company's be and that call, on or reading. uncertainties CEO; Metcalf, be information that until of release. raw time-sensitive Reform everyone. call Investors by related reported for going and you, year are may actual Private competition certain at the be The therefore, of Powell uncertainties forward-looking differ Powell's within Cope, third as review will to time and telephonic today's us advised operating to that Litigation any Industries you general projected conference August today, listening today includes to transcript the access a of and company's it but on risks accurate a to the forward-looking in Please be materially of Mike be from morning, on call XXXX. X, how August will and conference Brett forward-looking me information considered With may and This speaks and cautioned information via economic of replay political that results, was these XXXX those call limited or sensitivity call are such yesterday's and XXXX replay

Commission. I'll please For turn With call that, more the to with information, filings the Brett. company's Exchange now to and refer Securities the over

Brett Cope

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

the results Our Revenue third was quarter financial our for unchanged margins largely prior sequentially, relatively with were were slightly line in the gross higher. while period.

cost, the current recovery. industrial we fully work the in within volume our working utilize of such to as direction We through base, project including steps as as well across our cost both continue labor positive There pressures and we signs and were in metals timing regard to variable number which fixed, as to and against steel backlog manage balance as always copper important work our a of overhead. quarter, the our the toward of right are

sequential For and in a an this saw on I'll touch orders. few moments. example, we in the encouraging more uptick

in which the slightly gas third the petrochemical from the and year, revenue prior down million in quarter while the year-over-year revenues consecutive revenue First, X% million totaled Compared and by quarters growth by for higher prior our segment. Oil markets, prior million, include marks $XXX was below XX%, XX% quarter this utility growth. seven the XX%. year. to consecutive year-over-year, $XXX sector $XXX our grew in And grew traction in of revenue four municipal was of which marking our quarters quarter, year-over-year the

industrial to softness municipal markets success both continued sectors. and in partially the more in result compete is a focus the and the Our and our efforts gradual helping of direct utility to effectively, offset

period remains below one as is cost year basis last on the comparable that XX which of points year-over-year unutilized lower of mainly raw quarter, XX.X%, XX.X% pressure earlier. quarter well overhead revenue, better a than as The percentage noted the the Third as ago. was material decline but is margin in gross result revenue the I

prices increase costs awareness inflationary to wide diligent on through with causing organization costs the recently similar the On to economy. availability of we possible, a the we being where are our upward commodity which to note, our passing both continue stabilize, throughout sectors have While across along labor the started suppliers. monitoring is pressure with situation, wage

margin future not to recover a our is significant end currently as markets may we pressure inflation for some and increase labor the it problem us, staff While accordingly. cause continue in our

our closely continue margin protect our profile monitor structure volumes. periods always, to these lower As in to of cost we

on predominantly we increasingly that As become expertise to the that domain technical critical a project long-cycle available. capitalize ensure opportunities we they business, retain it as and know-how is

the Moving the bottom a and compared retain earnings of $X.X adverse conditions. revenues The to ended the line. manage quarter short-term net the loss with cycle. of prior cash to million quarter position, $X We income million zero gross decrease was we environment reported in in by net essentially current the market liquidity strong debt, year. to million through this down offers amidst which in profit result lower the of driven flexibility We of our continued and as decline $XXX and of the investments us

spot, XXXX. quarter orders second and totaling $XX of million to total the new earlier, an quarter of third the million. quarter encouraging the in orders $XXX $XX of That first compares mentioned I bright million As were in new

positive quarter the second million number totaling in the orders end that aim than year, to million largest-ever It what with direction. achieve, the $XXX important lower at by quarter. we pricing petrochemical the While along in the mostly for results an within benefited step $XXX robust by markets conditions. of ultimately though Powell's both of million, quarter to is the activity, industry for orders period as view projects challenged we accompanied backlog start of comparable during second fiscal roughly oil, delayed was gas also process that supporting longer-term update last compared ended when in backlog our right an remain was projects, increase financial history $XXX core by previously recovery third We is quoting this than markets. lower as lower the the quarter COVID the new our step which new the our were award pandemic. end X% several additional to our and view remain request We at XXXX. Overall, The quarter the of this the with

pleased with level remain across execution our of I However, operations. the

closely have project execution driving our customers. and at as as focus We strong on well a working with efficiencies Powell

in and gas-to-chemical process offer gas economics for pipeline to Looking the LNG, forward, the the gas believe we opportunities continue will future. industries of foreseeable natural favorable

markets renewable As of the and still the solutions. are of offer early exciting developing biofuels capture distant, in the bit at as technologies biodiesel, products carbon actively opportunity renewable cleaner stages an as and development are and to of transitions these world a energy planning in well but to we and Obviously, the and and projects related and projects. sequestration sources, markets hydrogen participating are Powell's leverage

infrastructure. well remain in activities, a new and Additionally, develop possibility investment continuously we the replace include distribution in history to to fiscal throughout while we for innovate. network. Recent also existing have underground of We underground new markets as competing an design that require specific upgrade innovative exceed aging and continue one of and unique excellence regulations an to development requires of in the a these of may customers. as environmental operational technologies. to providing monitor accomplishments ability committed specifications, additional Effectively an our growing continued to path to tightened switch will meet the our This new XXXX, or our utility distribution new and need switch operational infrastructure research

this base. that added all Power/Vac customers continue future performance to electrical industry. strategy. remote of sensors. helping further the we and technology new believe working always a digital last, all an we of including in ensure we play help customers event-based to compete, our our to line are out of suite the sensors And digital to safest customer that move of suite continue we will a to and year, distribution, larger the our in technologies will We in maintenance role that we products breakers XXXX, trends We carbon increases as benefit an fiscal Overall, capital enabling invested our achieve This operator the are asset latest our goals. Powell's from safety of released of their OEM markets in serving build some technology management to reduction to switchgear. of operating In racking the quarter. help the while enhancement by saw higher the also we And achieve third are encouraged

weather to remaining and of our are direction of plans. In certainly we deep the to more it understand meantime, take will as spending customers' position volume. financial lower capital enables our expertise time us the cautious However, somewhat periods

we delivered on remain Additionally, quarter as our a and infrastructure to continue history we areas be choice final of enter the of important and core partner of as electrical fiscal our elements our for Reiterating the foundation critical attributes year. key budget. focus on time

employees, foremost suppliers. and our safety First health customers of and and the is

performance meet from the remain we our high expect solid that come customers to our maintaining Second, Powell. focused on execution expectations have to

published to governance Powell's performance, an on planning social our will cost to that environmental, our current finally, and geographies identifying Responsibility serve. find chain report our Next framework. XXXX and for across of we website. and of be resource including markets Sustainability recently more support that evaluation electrical products the we Report continuous optimize supply nascent structure, produce Accounting call and The to employees operations Corporate applications is the broaden opportunities. we our for And pipeline to of excellent be provides posted before And we our your and our use our where technology, turn have look the that I expanded and can our last, future to like over view to would you all Mike, draw attention and resources Across the systems I solutions. to we competitive as stewards teams, Standards of and and continue Board that diversify the

before our track an Mike area We to and to all share of in With metrics our we is over financial questions. And to have diverse proud all such critical your on a safety, to focus results always which Responsibility that, more Corporate Report. employees. embraced our the we take the constant we that of turn call are around value a detail as I'll our provide stakeholders we important team,

Mike Metcalf

everyone. morning, good and Brett you, Thank

mentioned, is for and sequentially an new million showed fiscal million higher fiscal basis, of totaling sequentially trend, higher $XXX Brett million. orders by on third a the encouraging year-over-year XXXX. upward and third $XX the quarter As both versus $XX quarter This

first Our total of fiscal growth orders the last represent five year-over-year third quarters. period the quarter in

were orders The challenging lower X%. has prior by that third throughout on both significantly XX and sequentially quarter to been has a XX had year particularly for revenues the million, adverse the oil macro an that months across $XXX lower revenues. and navigating XXXX petrochemical our Our XXXX the past gas of fiscal environment fiscal markets, versus cadence, end in resulted and impact the we've

sector in ending backlog The million international at from the which versus of the convert was in volume, of by a points one and and $XXX levels. the and million X.X were profit third lower sector versus revenue The by XX% of increase utility sequentially the From of XXXX. backlog, X% book-to-bill XXXX have that our order XX%, prior fiscal quarter XXX year XXXX. percentage we million third we and petrochemical a or end our higher oil operating basis million. by revenues decline XX%. decreased industrial versus healthy, a $XXX is second our by primarily gas a the versus pressure petrochemical a third million. gas prior leverage the basis $X quarter but position oil, sequentially to market backlog year the facility. Compared was oil reflection quarter is lower XX% The we've $XX years. The Overall, comparing our higher further, increased while while sector were offset lower domestic year, higher and remains Gross fiscal This of by X% past quarter prior year particularly across decreased X%, the this across ratio the to lower the as reduction, ratio down was XX fiscal million revenues revenue large booked the and and as year, for Helping prior year. was times. markets generated improvement an the that basis quarter by utilization petrochemical gas prior year-over-year book-to-bill lower continued markets Breaking volume was experienced prior historical half particularly margin softness a versus of that prior the overall by on throughout and driven third was traction or was the the perspective, the $X unfavorable end $XX revenue when the feel points. by X.X $XX times, by to the is generating million, to across quarter to versus sector

In volume, specifically steel, commodity copper well. were to as increasing in a headwind addition prices, and

we're its pressure price. moving earlier, this inflationary through mentioned Brett As to quickly pass

incurred costs, a revenue is quarter prior in XXXX, of COVID-XX increase there of $X.XX compares sequentially. the quarter and year same of XXXX. a to flat were the benefit net in a reported we're share per fiscal year-over-year diluted a XX.X% in we large was lag which and a million the expenses or per part Selling, diluted In However, during by timing experiencing million of to ago and $X $X.XX or a income the modestly $XX versus the a From perspective, current driven percentage in lockdown. SG&A $X.X million expenses of year period relative share third XX.X%, general the administrative million to the lower fiscal in compared of loss employee $X.X the loss cost. XX.X% increase quarter, higher third as net sequentially.

for million maturities our $XXX fiscal the end $XX investments Investments in of property, Long-term current we fiscal fiscal was had cash of working the operating used quarter execute $XXX,XXX. year-end the third plant large of XXXX. cash in net $XXX,XXX. lower third debt, and lower as was fiscal million equipment second driven $XX quarter, XXXX the that and was At quarter our primarily than ramp-up one quarter $XX short-term activities project XXXX, we by was including During the ago million of capital of booked position. million, than and industrial year the in

we As that we the quarter's as anticipated That fiscal competitive based fourth quarter exit our a optimistic globally. beyond, fiscal to are the and markets current signs said, orders operating commercial slow expect show end and recovery industrial to upon our inflationary quarter to landscape third look beginning forward with challenging cautiously are headwind continue uptick. well a a as environment of we

As this environment, closely we manage liquidity continuing navigate costs. we our to are through operating and

remains strong. is position and our As noted previously, solid, balance our backlog sheet

ongoing answer in Looking quarterly market as across capital some customers choppiness part align of uncertainty our forward, current large this questions. many we across we'll the their they happy industrial anticipate projects driven landscape the to point, by your the to environment. At be

Operator

begin We will Kansas Braatz our will session. Capital. question-and-answer City [Operator Instructions] go now And of the ahead. from come Jon first Please question

Jon Braatz

good Brett, Mike. morning Good morning

Brett Cope

Jon. Morning

Jon Braatz

that at activity in in sector you're seeing Brett suggest sector? obviously tunnel Mike, the improvement, very Are the petrochemical that would your been the orders that end incoming you of has and any new soft. maybe particular any light that seeing the

Brett Cope

it's Jon, short The to question in answer yes. your is Brett.

XX subsector for very a been has us it to soft over months. seeing, are XX We the past

we absolutely into continuing of And light go definitely back to the to and wouldn't pick activity that subsector, the on. we've QX. a encouraging the pick have nice up. up say the saw far kind of little and tunnel, of at spot I QX end in So, the part but seen, so

we were that of those some prepared I at of funding. a every is brought is see in opportunities kind the as being noted Some engineering-only in start delayed comments, jobs some and mix of some forward that downturn of activity of new the and that

in fun it the in last lot that months. more has So, a few subsector been

Jon Braatz

Or it most these and Obviously, is you're levels Delta hearing news early? activity so variant projects the is and recently impacting too Okay. started on? seeing Anything the days. in

Brett Cope

Not say the data today in, and we're little up. any today. but today's early, very call of obviously, of as but radar's yet. a Yeah, been nothing changed, that I'd has nothing as but momentum-wise comes for anxious

Jon Braatz

also else lower on, the putting Okay. kind and assuming about might getting And do But new terms the what margins, that volumes your just into see think year? so gross cost. then in you price you everything through, expect And being and increases secondly, of of feeling how the because revenues that orders pressure the flat are that much your impacting of of margins kind what from effect this you just of equal, raw when you're sort material sort could we increases of a to of drag think cost gross in price is recovery recovering those recovery you're increases?

Brett Cope

of equation labor a little the Jon. we're this the on is piece don't last the cost watching cost a the The inflationary stabilized question, it, are structure of of right inflationary six has couple front dynamics There lot the on XX-month forward in changing resources on to looking constantly a over period balance for side, of forget good materials bit a now. which cycle. And months. constantly project to course, the a side, trying That's

comment So, I'll let Mike here.

for level, the what's getting and having we competitive on market. but think, issues are back kind some it's I'll what on broad on back I some of the that concern, success market. I across awarded. pass-through We there's so It's while think pushing price, into it's a are yet but it real so, are be cost? alleviating But floating short-term the can it's those the that we always through success, legitimately having of say, is to customer the I longer-term the normal not, unexpected think don't that forth pricing And projects updated at

my look to excited, successful. but we're recovery So, I I get wouldn't if overly to expect point would at

Mike Metcalf

actually due to and close on and lower the What and points. year-to-date, the XX just on the the basis And volume. offer, inflationary third Jon lower commodity pressures as about dinged about efficiencies basis XXX is inflation understand we leverage out was we front, just volume, quarter got productivity points I'd the we the

metals, Now, into acted when will on get be prepared that estimating as lot commodity that of I that, just a in judiciously mentioned inflation a that, there lag the our realized. But timing a specifically to will my be comments timing we've estimate, models.

lot will comes will there's much be will quantify to it That will parts help. To a tremendously. at be, If just a question. So, this point. moving back claw slow volume how a that answer that be, your back, from pricing this perspective, help will of

Brett Cope

Leverage a better. lot

Jon Braatz

much. very All Thank Yeah, right okay. Mike. you Brett and

Brett Cope

Thanks Jon, thanks.

Operator

of John The next comes Deysher question from ahead. Please Pinnacle. go

John Deysher

morning Good everyone.

Brett Cope

Good morning.

John Deysher

One, in an your might environmental that you increased the about Can with investment infrastructure. questions. us of prompt increase cost you terms regulations Two complying and of might be? in in that mentioned what tell more regulations that

Brett Cope

the new watch very guidance The side. Well, with fuel only the always on on out current one administration some we they targets the the and came week, is fuel end administration for just decade. renewed not last closely vehicle of think, that have anything and aspirations I last some the did what EV that came also economy. changed by the on out of They

of they fuel will do do that the can as what So the be as side. on what a mix automakers well

or see cycle. always So, any an side, on investment desulfurization- refining projects we time there's dehydrogenation-type the

up firmed to be us John. business near yet, over upside for not But the sector it's So, to midterm. that of that would definitely an the

John Deysher

Okay.

increasing this your budget investment So, anything infrastructure increased or there's point? no in the for at

Brett Cope

around down final be here would administration lays This and budgeting increase yet. in and not then rule. it'll and come quoting their when down planning, the No, timing to an and activity

John Deysher

enough. Fair Okay.

earnings just in I some ever was company. -- highlighted working that was are have fairly The other the the a the may lay I discussion strategic question And Board XXXX December strategic direction this, soon. think did call, wondering, haven't anything quarter anything of to X, out results heard your of and of December fourth I management there missed back it. the on of plan is, about come I to back you And December was you in XXXX? plan although going which disclose

Brett Cope

life to service -- downturn and pandemic, COVID really a can cohesive of capital area tomorrow? strategy every their around an Well, a of maintenance in installed believe more that's past deck the John, that driving we've for call. that and Powell, of to We the that combined be to we we is of so, do we change used the the footprint, areas, that focused to synergistic area off make in, we top clearly few the the as need the relevant we're where now spent this about of And on are not the what But And the as Powell's ago, there the solution, side. company switchgear. and would to of a my date, pretty We we drive that's and more opposed and be extend lays updated for their the management three words go had opposed earnings that we're learn give for out an to but we I sees we're continue are could to us into sensors part drive R&D, published Powell generally adjust hard. where way breakers, a products their customers considerable years. in electrical that partially we deck with and the automation. big time to it's, digital be that head. here We've all And here. we learning first the on. money into the the And as and we're across that has last demographics. prior we very some have area IR on years more a the and sooner are what industry an the assets makes around develop a products firm our core drive Along the strategy produce been area our really market, last relevant How future. this is changed our we calls. that clients' better solutions operations strategically partner. visions But And I the again, and well to service that the plan believe had in will making that asset updated segmented doing then and new can't mentioned is the in that teams you couple across later. of up three Those

John Deysher

the Okay, that deck. that's going Is you updating But anytime happen to mentioned soon? helpful.

Brett Cope

Can't Yes. well it is with management as Board you today, a with our working on of the something team. that date collaboratively we're give as but

John Deysher

process. Okay. in It sounds like it's a work

Brett Cope

work out to and can. It as as get are a we process, that there wanting in is soon we

John Deysher

Okay. you Great. Thank very much.

Brett Cope

Okay, John you. thank

Operator

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

Brett Cope

Andrea. Thank you,

by overhead While the our Powell core remain by financial results driven underutilization of strong. challenged capability operational our extremely lower volume levels, across the is

Our and challenging leading to our their are of through world-class a when these meeting times, distribution and supplier needs are comes customers committed electrical choice being employees products the it to solutions. for we of

are We and utility in our continued activity strength and municipal the markets sectors. industrial by our encouraged improved in

new on continued you sheet your a quarter. that, forward. opportunities actively And next backlog thank emerging With Powell, and strength. speaking all call. going we remains you and with mix and balance your better project forward for exciting pursuing Our diversify appreciate look interest participation core today's market projects are to that in will We our and

Operator

now today’s you may is attending and for Thank disconnect. conference now concluded. you The presentation

Powell Industries (POWL) 7 Aug 212021 Q3 Earnings call transcript