Yahoo Finance Powell Industries, Inc. (NASDAQ:POWL) Q1 2024 Earnings Call Transcript
Powell Industries, Inc. (NASDAQ:POWL) Q1 2024 Earnings Call Transcript January 31, 2024
Powell Industries, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Powell Industries' Fiscal First Quarter 2024 Results Conference Call. All participants will be in 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 now like to turn the conference over to Ryan Coleman, Alpha IR, Investor Relations. Please go ahead.
Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2024 first quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call, and it will be made available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until February 8. The information on 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, January 31, 2024, 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 1995. 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 now turn the call over to Brett.
Brett Cope: Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2024 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. Powell delivered a strong start to our fiscal year as our first quarter was very much a continuation of the trends and strong results we saw in the prior quarter. Despite what is typically a seasonally slow period, we recorded $198 million of new orders, which was sequentially higher by 15%, and in line with our expectations for a more normalized but still strong cadence of project bookings. We also delivered revenue growth of 53% compared to the prior year as we saw broad strength across our petrochemical, oil and gas, utility and commercial and other industrial sectors.
Mike will provide additional detail on our revenue growth by market sector in a moment. Our strong revenue growth, coupled with maintaining our focus on both project execution and operational efficiency are all working together to help deliver significantly improved profitability. Our gross margin in the quarter was 24.8%, an improvement of 950 basis points compared to last year and the best first quarter gross margin performance since fiscal 2010. It also puts us comfortably on track to deliver on our previously communicated guidance of gross margin in the low-20s in fiscal 2024. On the bottom line, we recorded net income of $24 million, or $1.98 per diluted share, which was significantly above net income of $1.2 million or $0.10 diluted share in the year ago period.
Our backlog remains very strong and was roughly unchanged sequentially at $1.3 billion. We continue to feel confident that our current backlog is comprised mainly of projects that speak to Powell's core competencies. The capacity expansion of our Houston facility on the Gulf Coast is effectively completed as we noted last quarter. This investment was planned last year to give us expanded fabrication and integration support for large power control rooms, especially for projects that support delivery and transport by water access. Also, as we noted last quarter, we expect to launch a more modest expansion of our electrical products factory based in Houston. This $11 million expansion will take approximately 18 months to complete. The investment coincides with our development plans to release new products and support of our initiatives helping facilitate future growth across the customers and markets we serve.
We remain comfortable with our current staffing levels and are confident that we have the right people in place to meet the demanding project schedules of our current backlog. Our teams also continue to successfully manage price fluctuations of key materials as well as the general availability of select engineered components. We continue to see encouraging levels of project activity within our oil, gas and petrochemical markets. As we have noted for some time, we believe the fundamentals of the U.S. natural gas market remain favorable for our core markets and support many global economic, environmental goals over the long-term horizon. Recent and oddly-timed actions by the current U.S. administration will most likely serve to slightly slow the pace of project schedules creating a bit more uncertainty around project timing over the near-term.
We also continue to see healthy activity across the other markets where we compete. We enjoyed solid contributions to the order book in our first quarter. In our newer sector of commercial and other industrial sectors, we experienced solid activity during the quarter from markets such as data centers, but would also note increased uncertainty in lithium-related projects in support of future electric vehicle demand and large scale battery storage. Energy transition projects that have been in process for some time, including hydrogen, biofuels, and carbon capture and sequestration continue to be active and will be larger contributors to our financial results in fiscal 2024 and 2025. Our near and medium-term priorities remain unchanged in fiscal 2024.
We are focused on growing our electrical automation platform, expanding our existing services franchise, and diversifying and expanding our electrical products and solutions portfolio. In summary, our fiscal 2024 is off to a strong start with another quarter of nearly $200 million of booked orders and significantly improved profitability compared to the prior year. Our backlog remains strong with a healthy mix of projects that we believe will sustain our profitability through fiscal 2024 and into 2025. The markets we serve continue to exhibit encouraging levels of project activity and remain favorable. And we continue to monitor recent developments and select markets for their effect on the timing of future projects. We are highly confident that our financial position, commitment to execution and continued progress against our strategic initiatives will support another successful year for Powell.
With that, I'll turn the call over to Mike to walk us through more of our financial results in greater detail.
Mike Metcalf: Thank you, Brett, and good morning, everyone. In the first quarter of fiscal 2024, we reported net revenue of $194 million, compared to $127 million or 53% higher versus the same period in fiscal 2023. New orders booked in the first fiscal quarter of 2024 were $198 million, which was 7% lower than the same period one year ago as the prior period included a large LNG project booking. As our continued effort on end market diversification continues, new bookings in utilities as well as commercial and other industrial markets improved in the current quarter compared with the first quarter of fiscal 2023. Our book-to-bill ratio is 1.0 times in the current period, maintaining the fiscal first quarter ending backlog at $1.3 billion, $620 million higher versus one year ago and flat sequentially.
Compared to the first quarter of fiscal 2023, domestic revenues improved by 60% to $160 million while international revenues were 28% higher, driven by increased project volume across our UK and Canadian facilities. In total, international revenues were up by $7 million to $34 million in the first fiscal quarter. From a market sector perspective versus the first quarter of fiscal 2023, revenues across our industrial end markets maintained the positive momentum. Our petrochemical sector was higher by 26% while oil and gas sector nearly doubled higher by 92%. Additionally, we experienced notable increases in both the utility and the commercial and other industrial market sectors increasing by 43% and 45%, respectively, reflecting our strategic focus on continued market diversification.
The traction sector was lower by 39% as this market sector remained soft. Gross profit increased by $29 million to $48 million in the first fiscal quarter versus the same period one year ago. Gross profit as a percentage of revenue increased by 950 basis points to 24.8% versus the same period a year ago and roughly flat sequentially. The margin rates exiting the backlog were driven largely by favorable volume leverage, operational enhancements across most of our manufacturing facilities as well as our strong project execution. We do anticipate based on the quality of our backlog and the trend of the margin rates over the past two to three quarters that we will sustain our margin levels in the low to mid-20s throughout fiscal 2024. Selling, general and administrative expenses were $20 million in the current period, higher by $3.5 million on increased variable performance-based compensation versus the same period one year ago.
SG&A as a percentage of revenue decreased by 280 basis points to 10.5% in the current fiscal quarter on the higher revenue base. In the first quarter of fiscal 2024, we reported net income of $24.1 million, generating $1.98 per diluted share compared to a net income of $1.2 million or $0.10 per diluted share in the first quarter of fiscal 2023. During the first quarter of fiscal 2024, we generated $84 million of operating cash flow as we continue to build our cash balance resulting from advanced project payments and working capital efficiencies, a portion of which will be allocated to fund the projects in the order book as we execute our backlog. Investments in property, plant and equipment totaled $1.2 million as we continue to target productivity enhancements across the business.
At December 31, 2023, we had cash and short-term investments of $355 million compared to $279 million at September 30, 2023, and the company does not hold any debt. And finally, yesterday, we announced a 1% increase to our common stock dividend. This is the second consecutive year that the Board has taken this action. Albeit modest, this increase demonstrates our prudent approach to improve shareholder returns while also ensuring sufficient liquidity to fund our growing working capital requirements and growth aspirations. Looking forward, we remain encouraged by the commercial activity across most of our end markets and are optimistic that this will continue throughout fiscal 2024. We do, however, recognize some of the recent uncertainties in the macro environment that could have a timing impact on near-term market activity.
Considering these factors, and combined with both the quality and level of our backlog, we are well-positioned to sustain the solid financial results that we delivered exiting fiscal 2023 and anticipate that this momentum will continue throughout fiscal 2024. At this point, we'll be happy to answer your questions.
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