Powell Industries, Inc. (NASDAQ:POWL) Q1 2023 Earnings Call Transcript
Powell Industries, Inc. (NASDAQ:POWL) Q1 2023 Earnings Call Transcript February 1, 2023
Operator: Welcome to the Powell Industries Earnings Conference Call. . Please also note this event is being recorded. I would like to turn the conference over to Ryan Coleman, Investor Relations. Thank you. You may begin sir.
Ryan Coleman: Thank you operator and good morning, everyone. Thank you for joining us for Powell Industries Conference Call today to review Fiscal Year 2023 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 available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until February 08. 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, February 1, 2023, 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 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: Thanks Ryan. And good morning everyone. Thank you for joining us today to review Powell's fiscal 2023 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 great start in fiscal year as the momentum we experienced in the second half of last year from our core oil and gas and petrochemical markets carried into the start of 2023 and was further complemented by solid growth within the quarter in our utility in commercial and other industrial markets. These strong results remained the function of the team's commitment to our customers as well as our broader deliberate focus on our strategic initiatives to create a more resilient and diversified pile that will lead to stronger growth across the economic cycle.
Macroeconomic factors such as elevated costs and the global supply chain certainly remain headwinds. But we are very pleased with our execution and the momentum built within the business over the past few quarters. Powell is well positioned to deliver improved revenue growth and profitability in fiscal 2023. Total revenue in the first quarter was $127 million, which was 19% higher than the prior year. By market, revenues in our petrochemical sector were higher by 31% while the oil and gas sector was roughly flat on a year-over-year basis. Our utility sector saw revenue jumped 32% compared to the prior year, while the newly broken out commercial and other industrial sector saw revenue triple. This was partially offset by the traction sector, which declined by 38% mainly the function of wrapping up a large municipal project in Canada.
Order activity in the quarter was very strong as we secured $212 million in new bookings. This is the best first fiscal quarter of bookings Powell has had since Q1 of fiscal 2013. Our book-to-bill ratio in the quarter of 1.7 times was equally strong, and was the fifth straight quarter with a book-to-bill over one. I'm also pleased to report that for a second consecutive quarter, we were fortunate to book another significant industrial order to support the production of liquefied natural gas, as we continue to see favorable opportunities within LNG, gas pipeline and gas to chemical sectors. Overall activity in our core oil, gas and petrochemical markets continues to improve as bookings in these markets nearly tripled compared to the prior year.
Meanwhile, project activity and associated work on new bids across our utility, traction and commercial and other industrial sectors remained favorable. Each of these sectors experienced a year-over-year growth in bookings and are largely supported by a steady volume of small to midsize project activity. Our team's delivered a gross margin in the quarter of 15.3%, which increased 270 basis points compared to the same period in the prior year. Strong project execution, favorable services mix and positive close outs helped to deliver the underlying margin growth. Moving to the bottom line, we reported net income of $1.2 million in the quarter or $0.10 per diluted share, compared to a net loss of $2.8 million, or a loss of 24% per diluted share in the prior year.
Lastly, we ended the quarter with a total backlog of $680 million. This is the second consecutive quarter that we have recorded the highest backlog in Powell's history, and represents sequential growth of 15% and a 63% higher than the end of Q1 last year. A significant increase in our backlog volume provides an extended runway for policies sustain improved revenue growth for the next few years, as we are beginning to book projects in fiscal 2025. Importantly, our project backlog remains well balanced across our seven manufacturing facilities and across the markets that we serve. Overall, from a commercial standpoint, the quarter was another step in the right direction and mark to continue return of our key end markets. We are encouraged by the current demand environment and are comfortable with our capacity to execute on our order book efficiently and on time.
It is also worth noting that the solid financial results came in what is typically a softer quarter due to seasonality effects, and is our best first fiscal quarter financial performance in recent years. Turning to our operational performance, we continue working diligently to mitigate the effects of the higher cost environment. Price and availability of key engineering components remain material headwinds, and we are closely watching the price of the price action for key commodities such as steel and copper. Our teams are working hard to identify and address these price increases early enough to factor them into our bidding process and ensure they do not create significant cost overruns on current and future project activity. We also maintain and emphasize an extremely strong focus on productivity and strong project close outs to protect our merchants.
Further, we continue to implement pricing initiatives to align projects to the current cost environment where and when possible. Labor also remains a challenging area to navigate. We closely monitor the cost of labor and our level of staffing across the business as we work to support the growth and timing of execution of our improved backlog. Similar to past quarters, labor issues have not yet presented material headwinds. But we remain attentive to our current capacity levels as our backlog grows to record levels. Our human resources team has been working extremely hard over the last several quarters, and have facilitated our ability to effectively navigate the difficult labor environment thus far. I also wanted to take a moment to call out that yesterday afternoon, we announced that the board has approved a 1% increase to our common stock dividend.
This is an important step for Powell and underscores our growing confidence, our long term strategic direction as well as our commitment to lift to delivering value for our shareholders. The fundamentals and outlook for our business are improving, and our strong balance sheet leaves us in a very solid financial position. We remain acutely focused on executing against each of our strategic initiatives in fiscal 2023, which include growing our electrical automation platform, expanding our existing services franchise, and diversifying our product portfolio through both targeting tangential applications that complement our existing product offerings, as well as expanding the scope of our product catalogue and the new electrical technologies. We are already seeing the impact of these initiatives in our financial results.
And we'll continue to share examples of our progress as appropriate. Overall, we are confident that the positive transformational steps being taken internally at the company supported by improving conditions across our core end markets will drive another strong year for Powell. With that, I'll turn the call over to Mike to provide more detail around our financial results.
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Michael Metcalf: Thank you, Brett and good morning, everyone. In the first quarter of fiscal 2023, we reported net revenue of $127 million compared to $107 million, or 19% higher versus the same period in the prior year. New orders booked in the first fiscal quarter of 2023 were $212 million, which included one large domestic liquefied natural gas project order. This improved orders cadence is generally favorable across most of our reported market sectors, however, was driven in large part this past quarter by the gas markets within the industrial sector, driving the total reported bookings for the first fiscal quarter to nearly a two fold increase or $104 million higher versus the same period one year ago. As a result our book-to-bill ratio was 1.7 times in the period with a record $680 million of backlog at the end of the first fiscal quarter, which was $264 million higher versus one year ago and $88 million higher sequentially.
Compared to one year ago, domestic revenues were higher by 22% versus the prior year to $100 million. While international revenues were 10% higher compared to the prior year driven by higher project volume in our Canadian facility. In total, international revenues were up by $2 million to $27 million in the first fiscal quarter. From a market sector perspective versus the prior year, revenues across our petrochemical sector were higher by 31%, while the oil and gas sector was essentially flat on a year-over-year basis. In addition to this we experienced year-over-year increases in both the utility and the commercial and other industrial sectors increasing by 32% and 202%, respectively. Finally, the traction sector was lower versus the first fiscal quarter of 2022 by 38% as we wrap up a large municipal project in Canada.
Gross profit in the period increased by $6 million to $20 million in the first fiscal quarter versus the same period one year ago. As a percentage of revenue, gross profit increased by 270 basis points to 15.3% versus the same period a year ago, driven largely by improved pricing on projects that are now exiting the backlog, as well as strong project execution across most of the power manufacturing and service facilities. Selling, general and administrative expenses were $17 million in the current quarter higher by $1 million versus the same period a year ago. And increased variable performance based compensation based upon the expectation for higher levels of operating performance versus the prior year. SG&A as a percentage of revenue decreased 160 basis points to 13% in the quarter on higher -- on a higher revenue base.
In the first quarter of fiscal 2023, we reported net income of $1.2 million, generating $0.10 per diluted share, compared to a net loss of $2.8 million, or a loss of $0.24 per diluted share in the first quarter of fiscal 2022. During the first quarter of fiscal 2023 net cash used in operating activities was $549,000 as we continue to build working capital, and enhance our capabilities to support our growing backlog of new projects. Investments in property, plant and equipment totaled $2.7 million, as we put capital to work enhancing our fabrication capacity, and investing in additional productivity initiatives that will help our operational teams deliver for our customers throughout 2023 and beyond. At December 31 2022, we had cash and short term investments of $111 million, compared to $117 million at September 30, 2022.
The company holds no long term debt. Finally, and as Brett noted, yesterday, we announced a 1% increase to our common stock dividend. This incremental step demonstrates both our prudent and conservative approach towards delivering shareholder returns, while also ensuring sufficient liquidity to fund our growing working capital requirements, as well as balancing our organic and inorganic growth objectives. Looking forward, we remain very encouraged by the continued commercial success that we've experienced across most of our core end markets, specifically in our industrial and utility end markets, and are optimistic that this momentum will continue. This combined with the level and quality of our backlog, our continued focus on accretive margin initiatives, as well as the strength of our balance sheet positions Powell to continue to deliver improved revenue and earnings throughout the remainder of fiscal 2023.
At this point, we'll be happy to answer your questions.
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