Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Powell Industries Inc (POWL, Financial) reported strong year-over-year growth with a 49% increase in revenue to $255 million, driven by performance in oil, gas, and petrochemical sectors.
- Net income significantly increased to $33.5 million, or $2.75 per diluted share, approximately four times higher than the previous year.
- The company's backlog remains robust at $1.3 billion, providing a solid foundation for future revenue.
- Operational efficiencies and process improvements initiated during the pandemic have continued to yield benefits, enhancing manufacturing processes and profitability.
- Expansion projects, including the $11 million expansion of the Electrical Products factory in Houston, are on track, supporting future growth and product development.
Negative Points
- Despite strong performance, new orders in Q2 2024 were 54% lower compared to the same period last year, primarily due to the absence of mega-project bookings.
- The company faces competitive pressures and sensitivity to economic and industry conditions, which could impact future performance.
- Uncertainties in the macro environment, particularly concerning LNG market activities, could affect near-term project timings and bookings.
- Finding and retaining talented engineers remains a critical challenge that could affect the company's ability to increase throughput and manage an expanding backlog.
- While international revenue saw a slight increase, it remains a small portion of total revenue, indicating slower growth in global markets compared to domestic.
Q & A Highlights
Q: Good morning, Brett and Mike, and congratulations on the solid quarter. More like John, I'd like to start, I guess, with the top line because that surprised me the most personally from last quarter you kind of referenced you were running at full capacity, but we're still able to generate some really strong revenue gains in the quarter. I'm curious how should we think about that? Was there anything unusual as far as revenue recognition from? Is that a sustainable level can you just kind of walk us through how at full capacity can generate that kind of that size of a rate environment?
A: John, it's Brett. I'll start and ask Mike to jump in here too up during the quarter about midway through the quarter. It did catch us a little surprise to it's a little lumpy as we look at all the things we're buying. So there when we looked at the results on the revenue side, there was a fair amount of large buyout and the way the POC works for us, it sort of jumped up a little bit. So looking at the back half of the year, I'm going to ask Mike to jump in here, but I don't I don't state that level that we just saw its potential just kind of depends on timing schedules move around, but it was a little bit higher than than we expected as we went into the quarter.
Q: And the like does that suggest that normal seasonality would be limited and won't see the big bump maybe in revenue?
A: We typically see in the fourth quarter and maybe should think about a little bit flatter and know I think on the delta between the two Q. three Q. patent in the 4Q Cadence probably will be less than it normally is. But I still think traditionally Q4 is usually a seasonally heavier quarter from a fiscal standpoint, fiscal year standpoint as we as we profile the year.
Q: Understood. And you maintained your gross margin expectations of low to mid 20s on. Would it limits to a better gross margin profile on you're seeing?
A: Well, one of the biggest contributor has been has been the leverage and being this ramped up kind of for your earlier question, I think that is one of the limiting factors as we're kind of butting up against capacity is eking out that leverage, we're kind of down to cost management. And we've kind of echoed that throughout the organization on our operational reviews this spring that the incrementals can come on the cost side, always kind of COGS on the employee side, making sure we're getting good quality folks on the team and supporting them as best we can.
Q: Okay. I guess one last question, I'll get back in the queue. The cash build has been sizable. I mean, historically, when had good revenues working capital capital outflows, I haven't seen the cash flow statement yet, but it doesn't seem to be the case. And can you talk about how we should think about cash usage as jobs ramp up and also your priorities for excess cash. Has the Board address maybe a potential special dividend or something along those lines.
A: Okay. Yes, John, I'll start and then Brett can chime in here. First, I know as we sit here today, the $365 million of cash and marketable market securities, we feel has in large part plateaued. We consumed roughly $20 million of capital to fund working capital this quarter. It is the offset to that was replenishment with the balance in new orders and the orders cadence in backlog and the associated advanced payments. So we anticipate as we look forward, given the healthy and normalized booking Cadence providing cash inflows. This should the cash balance should maintain about where it is maybe slightly recede as we as we fund working capital and CapEx requirements in the second.
Q: Morning, Brett. Good morning. We're going to come back to the revenue side of the business, Brad and Mike, what are you seeing in terms of sort of the quarterly book to burn numbers? We've talked about this in the past, Mike, but has that accelerated? Is that more than what is typically the case?
A: That's been pretty static, John, on over the past several quarters, and we've typically run 30 to $40 million a quarter of book-to-bill on top of the recognition of that backlog burn. So no, that's been pretty stable.
Q: Okay. Very good. And pricing, Tom, when we look at pricing throughout the quarter. Any benefit from pricing?
A: Nothing free, but very flat for a couple of quarters now there's always some opportunity there, but some schedule still dictates overall, I'd say on the competition and where we're at in the market. But pricing has become gradually more of a factor as not so much for Paul. But the Engineered Components is still throttle. Most of what we compete on and we're out in the market and it's got it's improved.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
