Powell Industries (NasdaqGS:POWL) Q1 2026 Earnings call February 04, 2026 11:00 AM ET Company ParticipantsBrett Cope - Chairman, President, and CEOManish Somaiya - Managing DirectorMike Metcalf - EVP, CFO, Secretary, and TreasurerRyan Coleman - Head of Investor RelationsConference Call ParticipantsChip Moore - Managing Director and Senior Research AnalystJohn Braatz - Partner and Senior Equity AnalystJohn Franzreb - Senior Equity AnalystOperatorWelcome to the Powell Industries Fiscal First Quarter 2026 Earn ...

Financial Data and Key Metrics Changes - Revenue grew by 4% year-over-year, reaching $251 million compared to $241 million in the same period last year [5][15] - Gross profit increased by 20% to $71 million, resulting in a gross margin of 28.4%, an improvement of 380 basis points year-over-year [5][19] - Net income rose to $41.4 million, or $3.40 per diluted share, a 19% increase from $34.8 million, or $2.86 per diluted share, in the prior year [21] - New orders booked were $439 million, a 63% increase compared to the same period last year, with a book-to-bill ratio of 1.7 times [6][16] Business Line Data and Key Metrics Changes - The commercial and other industrial market accounted for nearly half of the order total, with data centers representing approximately 15% of the total backlog [7][8] - The utility sector saw a revenue increase of 35% compared to the same period last year, while the oil and gas sector increased by 2% [18] - The petrochemical sector experienced a decline of 31% due to the completion of a large project and softer commercial activity [18] Market Data and Key Metrics Changes - Domestic revenues slightly decreased by 1% to $195 million, while international revenues increased by 29% to $44 million, driven by projects in the Middle East, Africa, Asia Pacific, and Europe [17][18] - The backlog at the end of the quarter was $1.6 billion, a sequential growth of 14% and the highest in the company's history [10][17] Company Strategy and Development Direction - The company is focused on expanding productive capacity and optimizing manufacturing processes to meet growing market demand, particularly in the LNG and data center sectors [9][11] - Strategic investments are being made in new facilities and equipment to support growth in medium voltage distribution products [12][58] - The company aims to maintain a strong presence in the electric utility and commercial markets while adapting to new market dynamics [12][60] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining strong demand across all end markets, with expectations for continued growth in 2026 [22] - The company is actively addressing potential constraints related to skilled labor shortages, which could impact growth ambitions [99] - Management remains optimistic about the commercial environment and the ability to execute on the backlog while maintaining margin levels [22][21] Other Important Information - The expansion of the Jacintoport facility is on schedule and expected to be completed in the second half of fiscal 2026, which will enhance capacity for oil and gas customers [11] - The company has no debt and reported cash and short-term investments of $501 million [21] Q&A Session Summary Question: Comments on gross margin sustainability - Management indicated that the gross margin improvement was driven by strong project closeouts and productivity, with expectations to maintain upper 20s margin levels [26][27] Question: Concerns about backlog firmness - Management expressed confidence in the durability of the $1.6 billion backlog, noting ongoing discussions with customers about project timing and capacity [28][32] Question: Data center project cadence and follow-on orders - Management discussed the project nature of data center work and the potential for increased production flow and efficiency in upcoming quarters [36][37] Question: Pricing environment and raw material costs - Management noted stable pricing across verticals and strategies to manage raw material costs through hedging and locking in prices for engineered components [44][48] Question: Lead times on components and potential constraints - Management indicated that they are well-positioned regarding capacity for various product levels, with ongoing discussions about meeting client needs [50][51] Question: Capital expenditure plans for capacity expansion - Management is considering a new facility investment of around $100 million to support growth, with expectations for double-digit revenue growth from new capacity [58][59] Question: Competitive environment in the LNG market - Management acknowledged increased competition but emphasized their focus on core strategies and the importance of maintaining relationships with clients [60][64] Question: Future cash utilization and working capital - Management indicated that a portion of the cash on hand will be allocated to new facilities and potential M&A opportunities, with a significant portion of the backlog requiring working capital [76][80]

Financial Data and Key Metrics Changes - Revenue for Q1 2026 increased by 4% year-over-year, reaching $251 million compared to $241 million in Q1 2025 [5][13] - Gross profit rose by 20% to $71 million, resulting in a gross margin of 28.4%, an improvement of 380 basis points year-over-year [5][18] - Net income for Q1 2026 was $41.4 million, or $3.40 per diluted share, a 19% increase from $34.8 million, or $2.86 per diluted share in Q1 2025 [20] Business Line Data and Key Metrics Changes - New orders booked in Q1 2026 totaled $439 million, a 63% increase from the same period last year, including significant orders in LNG and data centers [5][13] - The commercial and other industrial market accounted for nearly half of the total orders, with a notable mega order for a data center valued at approximately $75 million [6][15] - The backlog at the end of Q1 2026 was $1.6 billion, a sequential growth of 14% and the highest in the company's history [9][16] Market Data and Key Metrics Changes - Domestic revenues decreased slightly by 1% to $195 million, while international revenues increased by 29% to $44 million, driven by projects in the Middle East, Africa, Asia Pacific, and Europe [16][17] - Utility sector revenues increased by 35% year-over-year, while oil and gas sector revenues rose by 2%, contrasting with a 31% decline in the petrochemical sector [17] Company Strategy and Development Direction - The company is focused on expanding productive capacity and optimizing manufacturing processes to meet growing demand, particularly in the LNG and data center markets [8][10] - Strategic investments are being made in facilities and equipment to support growth in medium voltage distribution products and to enhance overall capacity [11][21] - The company aims to maintain a robust backlog and capitalize on favorable market conditions across all major end markets [12][21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining strong revenue and earnings growth throughout fiscal 2026, supported by a healthy backlog and positive market dynamics [21] - The company anticipates continued investment in electrical infrastructure to meet rising demand levels, particularly in the LNG and data center sectors [12][21] - Concerns regarding skilled labor shortages were acknowledged, with management actively working to address these challenges [100] Other Important Information - The company has no debt and reported cash and short-term investments of $501 million at the end of Q1 2026 [20] - The expansion of the Jacintoport facility is on schedule, expected to be completed in the second half of fiscal 2026, which will enhance capacity for LNG project support [10] Q&A Session Summary Question: Comments on gross margin sustainability - Management indicated that the gross margin improvement was driven by strong project execution and favorable closeouts, with expectations to maintain margins in the upper 20s [26][27] Question: Concerns about backlog firmness - Management expressed confidence in the durability of the $1.6 billion backlog, noting ongoing discussions with customers about capacity reservations [28][30] Question: Data center project cadence and follow-on orders - Management highlighted the potential for increased production flow and efficiency in data center projects, with ongoing evaluations for additional facilities to support demand [38][39] Question: Pricing environment and raw material costs - Management noted stable pricing across verticals, with strategies in place to manage raw material costs through hedging and locking in prices for engineered components [46][50] Question: Capacity ramp-up and future revenue growth - Management discussed potential capital expenditures for new facilities and indicated that double-digit revenue growth is possible with the new capacity [61][62] Question: Competitive environment in the LNG market - Management acknowledged an intense competitive landscape but emphasized their focus on core strategies and the importance of maintaining relationships with clients [63][64] Question: Cash on the balance sheet and working capital - Management indicated that a portion of the cash would be allocated to new facilities and that approximately 40%-50% of the cash balance would be deployed to support the backlog [82][84]