Participants

Ryan Coleman; Investor Relation; Alpha IR

Brett Cope; Chairman of the Board, President, Chief Executive Officer; Powell Industries Inc

Michael Metcalf; Chief Financial Officer, Executive Vice President, Treasurer, Secretary; Powell Industries Inc

Chip Moore; Analyst; Roth MKM

John Franzreb; Analyst; Sidoti & Company

Presentation

Operator

Good day and welcome to the Powell Industries Fiscal First quarter, 2025 earnings conference call.
(Operator instructions)
I would now like to turn the conference over to Ryan Coleman, Alpha IR.

Ryan Coleman

Thank you operator and good morning everyone. Thank you for joining us for Powell Industries Conference call today to review fiscal year 2025 first quarter. Results with me on the call are Brett Cope, Powell's, Chairman and CEO and Michael Metcalf, Powell's CFO. There will be a replay of today's call and it will be available via webcast by going to the company's website powellind.com or a telephonic replay will be available until February 14th. The information how to access the replay was provided in yesterday's earnings release. Please note that information reported on this call speaks only as of today, February 7, 2025 and therefore you are advised that any time sensitive information may no longer be accurate at the time of replay, listening or transcript reading.
This conference call includes certain statements including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the private Securities Litigation Reform Act of 1,995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual future results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include but are not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange commission with that. I'll turn the call over to Brett.

Brett Cope

Thanks Ryan and Good morning everyone. Thank you for joining us today to review Powell's fiscal 2025 first quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary. Before we take your questions, I recorded a strong start to the fiscal year highlighted by revenue growth of 24% and new order growth of 36% compared to the prior year revenue increased in every one of our major market sectors. As revenue from the oil and gas sector increased 14% while the electric utility and commercial and other industrial sectors grew 26% and 80% respectively.
Our order total of $269 million also saw broad strength led by an award this quarter for a large domestic L&G project to be located along the US Gulf coast. New project activity continues to be balanced across our industrial utility and commercial sectors. Our strategy in the utility market continues to be a bright spot as the sector once again accounted for nearly third of our backlog. Gross margin was roughly unchanged from the prior year but lower sequentially, this was in line with our expectations given the seasonal challenges we typically see in the first quarter as well as the benefit of project closeouts we experienced in the fourth quarter of 2024. On the bottom line, we recorded debt income of $35 million in the first quarter or $2.86 per diluted share, which was 44% higher than the prior year.
Our backlog of $1.3 billion increased by $48 million compared to the prior year and by $14 million. Sequentially, we remain very encouraged by the overall composition and project schedules of our backlog which is well balanced across both the markets and geographies in which we compete and provides revenue. Visibility into fiscal 2027.
We are making good progress with our capacity initiatives which are advancing as planned to help facilitate the execution of our current backlog as well as provide room for modest buying growth going forward, remediation work at the nine acres we purchased last July continues to progress on schedule and has already freed up important capacity at our largest manufacturing facility based in Houston. We expect this incremental capacity to contribute revenue in fiscal 2025. The expansion and improvement of our electrical products factory in Houston also remains on schedule and is expected to be completed by mid fiscal 2025.
The incremental space will be focused on supporting organic development of new products to better position Powell in our key markets. We continue to invest in our R&D function to support those efforts as our R&D spend was up 26% versus one year ago to $2.5 million. In the first quarter, we continue to attract and strengthen our talented workforce and are confident that we are adequately positioned to execute our backlog. Last quarter, we detailed the opening of an engineering satellite office on the far West side of Houston, allowing us to better engage and hire from a wider population of qualified engineers efforts like these are critical as we plan over the medium term, allowing us to attract the talent to fuel each of our three strategic growth initiatives.
Looking ahead, we have every reason to expect another solid performance for file and fiscal 2025 we are in an incredibly strong financial position and maintain a $1.3 billion order book comprised of projects that are central to what Paul does best. The fundamentals for our oil and gas and petrochemical markets support our expectation for continued strength for these sectors specific to the fundamentals of the us. Natural gas market price spreads across global markets remain favorable and conducive to us export activity within our commercial and other industrial market also remains healthy and includes activity within the data center market.
We continue our efforts to further penetrate the data center market and expand the total content opportunity for Powell within this market sector. Specifically, we are working to qualify more of our products and services for this important end market. As we also work to build relationships with both new customers and new channels to position Powell to succeed in this market.
Last, the outlook for our utility market remains very healthy. The overall volume of projects coming to market is materially higher than past years. And while we have increased our win rate, we continue to drive towards higher levels of success. Expanding our presence in this market has been the result of a deliberate and concerted effort going back more than a decade throughout the years when power demand was flat or falling in the US and new generation projects stalled. We invested considerable time and resources to position ourselves as a market leader and valued partner to utility customers today. As electricity demand is rising and new generation capacity must now work to catch up.
We are in a prime position to leverage our relationships and capabilities to help power this new era of investment in our energy infrastructure as a proud Texas based company with a storied history that stretches back more than seven decades. We believe that the renaissance in building and strengthening America's electrical infrastructure is best served by American manufacturing jobs and companies based right here in the United States. Here at Powell. We are excited to continue to play a leading role in powering our nation's future.
With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail.

Michael Metcalf

Thank you, Brett and good morning, everyone. In the first quarter of fiscal 2025 we reported net revenue of $241 million compared to $194 million or 24% higher. Versus the same period in fiscal 2024 new orders booked in the first fiscal quarter of 2025 were $269 million which was 36% higher than the same period one year ago and included a large domestic liquefied natural gas project order during the quarter.
Not withstanding this mega ING order, the order's cadence across most of our reported market sectors continues to be active as a result. Our book to bill ratio in the period was 1.1 times with a backlog of $1.3 billion as we exited our first fiscal quarter, which was $48 million higher than one year ago and $14 million higher. Sequentially compared to the first fiscal quarter of 2024 domestic revenues improved by 24% or $38 million to $198 million. While international revenues were 28% or $10 million higher to $44 million.
In the current fiscal quarter, the increase in our international revenues was driven predominantly by an increase in project volume across our Canadian operations. From a market sector perspective, revenues across our petrochemical oil and gas utility and commercial and other industrial end markets continued their positive momentum from fiscal 2024. Compared with the first fiscal quarter of 2024 our revenues from the petrochemical sector were higher by 17%. While revenues from the oil and gas sector increased by 14% in the current fiscal quarter.
Additionally, we achieved substantial growth in the electric utility and commercial and other industrial market sectors with increases of 26% and 80% respectively. These results reflect our continued strategic focus on diversifying and expanding into markets outside of our core industrial end markets. Albeit a small percentage of the total revenues, the light rail traction power market also experienced an increase of 89% on a modest revenue base.
Gross profit in the current period increased by $11 million to $60 million in the first fiscal quarter. Versus the same period one year ago, gross profit as a percentage of revenue was roughly flat versus the same period one year ago at 24.7% of revenues and lower sequentially by 460 basis points. In the absence of the strong project closeouts that we experienced in the fourth fiscal quarter combined with the seasonally lower first quarter shop activity.
As we noted in our fourth quarter release, we anticipated a challenging sequential comparison considering that our first fiscal quarter is historically the softest quarter across our fiscal year selling general and administrative expenses were $21.5 million in the current period and were higher by $1.1 million increased compensation expenses across the business. Versus the same period a year ago. SG&A as a percentage of revenue decreased 160 basis points to 8.9% in the current fiscal quarter on the higher revenue base versus the same period one year ago.
In the first fiscal quarter of 2025 we reported net income of $34.8 million generating $2.86 per diluted share. This represents a 44% increase compared to net income of $24.1 million or $1.98 per diluted share. In the same period of fiscal 2024. During the first quarter of fiscal 2025 we generated $37 million of operating cash flow on favorable income generation through the period. Investments in property plant and equipment totaled $2.2 million as we continue to fund the large facility expansion and improvement project at our breaker facility in Houston at December 31, 2024 we had cash and short term investments of $373 million compared to $358 million at September 30, 2024. And the company does not hold any debt.
And finally, earlier this week, we announced an annualized $0.01 per share increase to our common stock dividend. This is the third consecutive year that the board has taken this action. This action demonstrates our commitment to continually improving shareholder returns while also ensuring sufficient liquidity to fund our CapEx and working capital requirements. In addition to the growth aspirations for the business, as we look ahead to the remainder of fiscal 2025. We are encouraged by the sustained commercial momentum across our end markets through the first fiscal quarter of 2025 which has allowed us to maintain both the quality and the quantity of our backlog. Combined with our ongoing focus on optimizing margin levers in addition to the strength of our balance sheet. Powell is well positioned to deliver robust revenue and earnings throughout the rest of fiscal 2025.
At this point, we'll be happy to answer your questions.

Question and Answer Session

Operator

(Operator instructions)
The first question today comes from Chip Moore, Roth.

Chip Moore

Thanks for taking the questions. But Mike, maybe we could start on the project pipeline you're seeing here in the new year post post elections in particularly, what you're seeing on L&G and, and any more color on that, that order you won this quarter?

Brett Cope

Nice award in the first quarter, roughly $75 million give or take of the first quarter booking number. I think I noted last quarter that the funnel activity on the market started to pick up. I think in anticipation of the change of the administration. Nice to see that they started permitting process again, at least as the new DOE secretary has gotten in there. And I'd say that in line with that, from the end of the year until this Q1 activity is picked up that much more. So, we very encouraged by the outlook for that particular market.

Chip Moore

And if I could ask on margins, obviously, you're, seasonally weaker quarter with shutdowns on holidays and things like that. Can you talk a little bit more? Are you seeing any competitive pressures out there or anything like that? And then on the go forward should we be thinking about potential margin expansion this year? Q2 last year was sort of flattish quarter over quarter, anything to call out there. And then any impact on tariffs or any thoughts on tariffs?

Michael Metcalf

This is this is Mike. I'll start off by addressing your question margins. First is, as we noted in the, in the prepared comments, our first fiscal quarter historically is softer versus the remainder of the fiscal year due to the under recovery resulting from the holiday seasonal period. We see it really every year and it really, it results in a much lower operating leverage number compared to two Q, three Q and four Q. So as we look forward of the right barometer I think to use is if you look at trailing 12 months of of margins that we're exiting backlog, excluding those project strong, project close outs that we saw in the second half of fiscal 2024 which on an annualized basis probably contributes 100 basis points of of lift in margins. That's probably the right barometer to align to on a merchant basis.

Chip Moore

And yeah, I'll come in quick on TS and have Mike jump back in. Watching it really closely. I remind everybody that, we don't direct source anything out of the far east China, specifically relative to North America, Mexico and Canada. There is some inter company not significant part as we under one roof philosophy with commodities in and product out in all our factory locations. So a little bit of inter company, it would really be more of any indirect impact. What we saw years ago when some of this went on was logistic challenges sort of back up or indirect effect?
And so that's kind of where we're watching. We do have some aluminum every now and then specific to a certain couple of products that could get impacted. But we feel pretty good with our sourcing strategies, we can go to other areas and acquire it. So it's really that indirect effect that probably would have us most concerned. And anything direct, we feel like we could we could handle pretty well in the model.

Michael Metcalf

Just to follow on their chip, we were staying very close to both the imported material costs as well as any foreign currency fluctuations as it may result from the threat of tariffs that may or may not materialize. Fortunately, as Brett mentioned, the majority of our product costs are are sourced domestically in each one of our geographies that we operate in event that we do encounter a tariff cost headwinds. We these will be passed along in the form of price through our pricing models. So, we're staying very close to it.

Chip Moore

Got it very helpful. If I could ask one more, I guess on a commercial particularly data center, it sounded like I think you said 80% increase. So very strong is that mostly still cable bus out of Chicago? And then, in terms of new channels to market and new relationships there, new customers, maybe expand on that opportunity where that's headed.

Brett Cope

Yeah, no, also very encouraged, we're still early in the in the total impact to our total revenue number. But within quarter to quarter growth and activity and opportunity, we continue to build the channels, continue to build direct and and client relationships as we continue to make our way into that market. We are beyond the cable bus product. We are definitely supplying gear through different channels into that market. There were some nice wins within the, within the quarter bookings. And so I feel good where we're headed in that market. It's a huge opportunity. Notwithstanding, global macro things that happened over the last couple weeks. I think this this market's going to be good for Paul over the mid to long term.

Chip Moore

Very good. I'll hop back in queue.

Operator

The next question comes from John Franzreb, Sidoti.

John Franzreb

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

Brett Cope

Thank you, John. Yeah, that the product factory, as we noted in prepared comments last two quarters on track. Mid fiscal '25 which will be another couple of months. Buildings up ropes on cranes are in. So just over there a couple days ago, checking it out looks great. So as the products roll out organically R&D including the nine acres that we bought in June of last year for other capacity options, how can quickly spin up. There's about half that space has other potential. We could, we're currently doing some soil sampling over there right now to maybe consider pivoting a little bit on that for optionality.
And in addition to that, so that's about half of that nine acres. And then if you look elsewhere and pilot the offshore channel and then even at the product factory, we have another 20 acres all in all about 30 acres that we can convert and move, especially on substation opportunities. If we needed to move to be able to take more opportunity there, move more outside of the under one roof and free up for gear. So kind of alluded to that a little bit in Q1 back in December that we are looking at the footprint, continue to do it as well as maybe other inorganic opportunities more mid term.
So it's more active and we're watching it very closely and understanding how quick and how much CapEx and just kind of matching that to the market. So if we do pull the trigger, we can maximize the return.

John Franzreb

That's great to hear. Can you talk a little bit about the pricing environment with the demand profile so high are you are you able to implement higher prices on the projects?

Brett Cope

When you look at the capital side of the gear and the substations that has been pretty consistent over the last, well, over a year, they're not, we've talked before about watching any erosion in that market. It's something we watch very closely seems to be holding overall, we're looking for value add opportunities right now. Expanding the service side of the equation, the strategy around the OpEx side, we're starting to get some good momentum built there. And then on the automation front which continues to bring in heavy calories. We are quietly growing that business as well within the company.
And so we're looking for the evaluations into the model there where we can go in and around a capital job and extend to the brown side but no real. It would be tough. At this point to say we could see any more upside on the big capital jobs. They're kind of holding which is good. We're kind of more watching if there's any threat to the downside.

John Franzreb

Fair enough. And it's hard to ignore the fact that the cash is up nearly fourfold since the first quarter of 2023. What are your thoughts about cash?

Brett Cope

Kind of last quarter, you on the M&A. I took off the long term, kind of more bracketed it, more near to mid term. I'd hold those comments. Mike and I started that work years ago and talking with yourself. I think you followed the story. We've expanded within the team of the folks that are involved with us in that and the activity across that team has picked up. So I think that would be, we've identified some pretty good opportunities and working hard to figure out if we can make them go.
And John, I would also note that it's prudent to understand given our $1.3 billion backlog in our ability to execute roughly half of that, probably a little less than half, probably $175 million or so will be at some point deployed to working capital. So that's a good chunk of the cash that will be deployed to working capital. So about half the case gets drawn down as you execute a new project. So really what's available is roughly half of that.

John Franzreb

Fair enough and just would you care to frame the size of acquisitions you're kind of looking at. Is it niche? Is it any way you could kind of qualify it?

Brett Cope

I'll go back to the strategy to start with. We're always looking for opportunities on the product side. We're certainly up on the R&D spend organically. I think Q1, you're still running a percent of revenue, but as the business is growing, the absolute dollar has grown, the automation space, there's some things there that we feel could be added in the model. When I look at total potential with the board, it's in the $50 million to $75 million range right now. We could lever up higher if we really found something that was attractive, but in terms of accretion and look at what's affordable out there. And what really helps our strategy, take a step forward. That's currently the area that I'd say is most attractive to us.

John Franzreb

Thanks for the clarity. I'll get back into queue.

Operator

The next question comes from John Bratt, Kansas City capital.

Just, there's been a lot of noise in the L&G sector and just, I just want to make sure the $75 million award in this quarter has all the necessary permits, requirements and so on so forth to move forward. And that there's nothing that they're waiting for.

Brett Cope

No, this one has all the permits. It is a full go. It's one that historically was out there for years, paused for different reasons other than permitting but their permits always been good.

And then secondly, as we think about the prospects ahead, the DOE issued a report in December that wasn't too flattering for LNG, although they didn't say that they were against it. And as I understand it, the administration has to come up with a rebuttal, so to speak. And when you speak to your L&G clients, how optimistic are they indeed will be able to move forward, maybe in March April so on with some of their proposals and not be hit with some lawsuits that put a snag into everything. How are they thinking about that?

Brett Cope

So we are talking with a lot of those folks at the senior levels to understand all the puts and takes that you're sharing with in the question. I'd say what I could share is there is absolutely in the last 60 days, a heightened renewed encouragement within the sector. It's not to say timing as we've kind of indicated over the last 12 months isn't going to be somewhat more suspect than that. Big wave that hit us back in all '22, '2323 at once. So I think there's still that question of timing and dotting I's and crossing T's to get through it. But, I think Mike and I from the engagements we've had with the clients and the sector as we kind of look out what people are planning to do when we look at the activity, we're being asked to support for that planning process.
It's definitely taken a step up towards, getting going in a much more encouraging way over the next next couple of years. Not to say timing won't be an issue. I can't sit here today and the ones that we are tracking and say exactly when FID and permitting everything gets full clear for your first question, but the activity level is very optimistic.

Obviously you guys are a player at the table now. And should the floodgates open up, would you have to say no to some projects?

Brett Cope

I hope not. And that's sure John Frans' earlier question. It's the reason we put renewed energy into the acreage that we own here in Houston. And how quick can we did if you look at the last capital expansion, we did it offshore. The team came up with a great idea of how to not just minimize the capital, but deploy the capital so that we could maximize lay down area un, unlike previous expansions we've done out there, we've gone deeper with more engineered soil. We were came up with a way to kind of only go a foot and a half down as opposed to a 3 ft dig that Paul historically has done over the years out there that supports the need for the weight displacement that we require.
And so, and we've got some really good supplier, folks, contractors and good quarry, spend some time on the quarry materials. So we put all that together, we're kind of refreshing that and going, okay. What can we really do next wave and, and make sure that you look at the engineering process and when you get through the drawing process, so we can time if that were to happen. And along with that engineering office that we noted the last couple quarters, we want to have the upfront engineering resource so that as the drawings get done, you get through the process, we have the area to lay down the sub that if that if and when that wave were to kind of pile up on each other that we can maximize.

So when you look back at your the slew of projects that you were awarded back in 2022, 2023, when you look at it in aggregate, and the opportunities are out there that are out there? Would you see it being materially larger than what you saw back in a few years ago?

Brett Cope

My answer to that is yes. Although it won't come in one big wave. So I think I shared last couple calls intermittently in my comments that I believe that the amount that's out there in front of us is definitely bigger than the way you just noted. I just think the timing of that will be is uncertain, but there is definitely more planned over, I'll say maybe more mid term versus say, all going to happen in the next two years. But it's there's a lot of potential that we're tracking.

Thank you very much.

Operator

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

Brett Cope

Thank you, Betsy. I would like to thank our valued customers and our supplier partners for their continued trust and support of Powell and to our employees. Thank you for your incredible energy and commitment as we have risen together to meet opportunity with open minds and a healthy dose of Powell can do spirit. We are very pleased with our first quarter and expect another strong year for Powell. Thank you for joining this morning, Mike and I look forward to updating you all next quarter.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.