Tradeweb Markets Q1 2025 Earnings Call Transcript

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February 7, 2025

There are 7 speakers on the call.

Operator

Good day, and welcome to the Powell Industries Fiscal First Quarter twenty twenty five Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ryan Coleman with Alpha IR.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining us for Powell Industries' conference call today to review fiscal year twenty twenty five first quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO and Mike Metcalfe, 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 14. The information on how to access the replay was provided in yesterday's earnings release.

Speaker 1

Please note that information reported on this call speaks only as of today, 02/07/2025, 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 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.

Speaker 1

With that, I'll now turn the call over to Brad.

Speaker 2

Thanks, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal twenty twenty five 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 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 2680% respectively.

Speaker 2

Our order total of $269,000,000 also saw broad strength led by an award this quarter for a large domestic LNG project to be located along The U. S. 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 one third of our backlog.

Speaker 2

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

Speaker 3

the first quarter as

Speaker 2

well as the quarter as well as the benefit of project closeouts we experienced in the fourth quarter of twenty twenty four. On the bottom line, we recorded debt income of $35,000,000 in the first quarter or $2.86 per diluted share, which was 44% higher than the prior year. Our backlog of $1,300,000,000 increased by $48,000,000 compared to the prior year and by $14,000,000 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 twenty twenty seven. 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.

Speaker 2

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 twenty twenty five. The expansion and improvement of our Electrical Products factory in Houston also remains on schedule and is expected to be completed by mid fiscal twenty twenty five. 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 and D function to support those efforts as our R and D spend was up 26% versus one year ago to $2,500,000 in the first quarter.

Speaker 2

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 Powell in fiscal twenty twenty five. We are in an incredibly strong financial position and maintain a $1,300,000,000 order book comprised of projects that are central to what Powell does best.

Speaker 2

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 U. S. Natural gas market, price across global markets remain favorable and conducive to U. S.

Speaker 2

Export activity. 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.

Speaker 2

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 conservative effort going back more than a decade. Throughout the years, when power demand was flat or falling in The U. S.

Speaker 2

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.

Speaker 3

Thank you, Brett, and good morning, everyone. In the first quarter of fiscal twenty twenty five, we reported net revenue of $241,000,000 compared to $194,000,000 or 24% higher versus the same period in fiscal twenty twenty four. New orders booked in the first fiscal quarter of twenty twenty five were $269,000,000 which was 36% higher than the same period one year ago and included a large domestic liquefied natural gas project order during the quarter. Notwithstanding this mega LNG 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 $1,300,000,000 as we exited our first fiscal quarter, which was $48,000,000 higher than one year ago and $14,000,000 higher sequentially.

Speaker 3

Compared to the first fiscal quarter of twenty twenty four, domestic revenues improved by 24% or $38,000,000 to $198,000,000 while international revenues were 28% or $10,000,000 higher to $44,000,000 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 twenty twenty four. Compared with the first fiscal quarter of twenty twenty four, 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 2680% respectively.

Speaker 3

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 $11,000,000 to $60,000,000 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 four sixty 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.

Speaker 3

Selling, general and administrative expenses were $21,500,000 in the current period and were higher by $1,100,000 on increased compensation expenses across the business versus the same period a year ago. SG and 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 twenty twenty five, we reported net income of $34,800,000 generating $2.86 per diluted share. This represents a 44% increase compared to net income of $24,100,000 or 1.98 per diluted share in the same period of fiscal twenty twenty four. During the first quarter of fiscal twenty twenty five, we generated $37,000,000 of operating cash flow on favorable income generation through the period.

Speaker 3

Investments in property, plant and equipment totaled 2,200,000 as we continue to fund the large facility expansion and improvement project at our breaker facility in Houston. At 12/31/2024, we had cash and short term investments of $373,000,000 compared to $358,000,000 at 09/30/2024, 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.

Speaker 3

As we look ahead to the remainder of fiscal twenty twenty five, we are encouraged by the sustained commercial momentum across our end markets through the first fiscal quarter of twenty twenty five, 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 twenty twenty five. At this point, we'll be happy to answer your questions.

Operator

We will now begin the question and answer session. The first question today comes from Chip Moore with Roth. Please go ahead.

Speaker 4

Hey, good morning. Thanks for taking the questions. Good

Speaker 2

morning, Chip.

Speaker 4

Brett and Mike, maybe we could start on the project pipeline you're seeing here in the New Year post collections in particularly I guess what you're seeing on LNG and any more color on that order you won this quarter?

Speaker 2

Good morning, Chip. It's Brett. Yes, nice award in the first quarter, roughly $75,000,000 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.

Speaker 2

And I'd say that in line with that from the end of the year till this Q1 activity has picked up that much more. So we are very encouraged by the outlook for that particular market.

Speaker 4

Great. And if I could ask on margins, obviously, you're seasonally weaker quarter with shutdowns, some 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? I know Q2 last year was sort of flattish quarter over quarter.

Speaker 4

Anything to call out there? And then any impact on tariffs or any thoughts on tariffs?

Speaker 3

Yes. Hi, Chip. This is Mike. I'll start off by addressing your question on margins. First is, as we noted 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.

Speaker 3

We see it really every year. And it really it results in a much lower operating leverage number compared to 2Q, 3Q and 4Q. So as we look forward, the right barometer I think to use is if you look at the trailing twelve months of margins that we're exiting backlog, excluding those strong project closeouts that we saw in the second half of fiscal twenty twenty four, which on an annualized basis probably contributes 100 basis points of lift in margins, that's probably the right barometer to align to on a margin basis.

Speaker 2

Yes, I'll comment quick on tariffs and have Mike jump back in. Watching it really closely, I'd 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 intercompany, 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 intercompany. It would really be more of any indirect impact.

Speaker 2

What we saw years ago when some of this went on was logistic challenges sort of backup 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 that 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 handle pretty well in the model.

Speaker 3

Yes. And just to follow on there Chip, I mean 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 sourced domestically in each one of our geographies that we operate in. And in the event that we do encounter tariff cost headwinds, these will be passed along in the form of price through our pricing models. So we're staying very close to it.

Speaker 4

Got it. Very helpful. If I could ask one more, I guess, on commercial, purely 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?

Speaker 2

Yes. No. Also very encouraged. We're still early 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 end client relationships as we continue to make our way into that market.

Speaker 2

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 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 of weeks.

Speaker 2

I think this market is going to be good for Powell over the mid to long term.

Speaker 4

Very good. I'll hop back in queue. Thanks.

Operator

The next question comes from John Franzreb with Sidoti. Please go ahead.

Speaker 5

Good morning, Brett and Mike and congratulations on another great quarter.

Speaker 2

Good morning, John.

Speaker 5

I guess, Bert, 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?

Speaker 2

Yes. Good question. Thank you, John. Yes, the product factory, as we noted in prepared comments last two quarters, on track. So mid fiscal twenty five, which will be another couple of months, buildings up, roofs on, cranes are in.

Speaker 2

So just over there a couple of days ago, checking it out, looks great. So as the products roll out organically R and D, including the nine acres that we bought in June of last year for other capacity options that Powell 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 in the policy 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 that we needed to move, say, to be able to take more opportunity there, move more outside of the under one roof and free up for gear.

Speaker 2

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 midterm. So it is 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 we can if we do pull the trigger, we can maximize the return.

Speaker 5

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

Speaker 2

Yes and no. When you look

Speaker 6

at the capital side of the

Speaker 2

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.

Speaker 2

We're starting to get some good momentum built there. And then on the automation front, which continues to bring in heavier calories, we are quietly growing that business as well within the company. And so we're looking for the value additions into the model there where we can go in and around a capital job and extend into the brownfield side, but no real it would be tough I think 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.

Speaker 5

Not really. Okay, fair enough. And it's hard to ignore the fact that the cash is up nearly fourfold since the first quarter of twenty twenty three. What are your thoughts about cash?

Speaker 2

Kind of last quarter, you asked on the M and A, it's I took off the long term, kind of more bracketed at more near to midterm. I'd hold those comments. Mike and I started this work years ago and talking with yourself. I think you follow the story. We've expanded within the team of the folks that are involved with us

Speaker 4

in that

Speaker 2

and the activity across that team has ticked 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.

Speaker 3

And John, I would also note that it's prudent to understand given our $1,300,000,000 backlog and our ability to execute roughly half of that, probably a little less than half, probably $175,000,000 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.

Speaker 5

So about half the cash gets drawn down as you execute a new project. So really what's available is roughly half of that. Okay. Fair enough. And just, Brett, would you care to frame the size of acquisitions you're kind of looking at?

Speaker 5

Is it niche? Is it any way you could kind of qualify it?

Speaker 2

Well, 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 and D spend organically. I think Q1 we're still running a percent of revenue, but as the business has grown, the absolute dollar has grown. The automation space, there's some things there that we feel could be additive in the model.

Speaker 2

When I look at total potential with the board, it's in the $50,000,000 to $75,000,000 range right now. We could lever up higher if we really found something that was that 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.

Speaker 5

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

Speaker 6

Okay. Thanks, John.

Operator

The next question comes from John Brat with Kansas City Capital. Please go ahead.

Speaker 6

Good morning, Brett, Mike.

Speaker 2

Good morning, John.

Speaker 6

Brett, just there's been a lot of noise in the LNG sector and

Speaker 2

just want

Speaker 6

to make sure the $75,000,000 award in this quarter has all the necessary permits, requirements and so on and so forth to move forward and that there's nothing that they're waiting for?

Speaker 2

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

Speaker 6

Okay. And then secondly, again, as we think about the LNG prospects ahead, the DOE issued a report in December that wasn't too flattering for LNG, although they didn't say they were against it. And as I understand it, the administration has to come up with a rebuttal, so to speak. And but when you speak to your LNG clients, how optimistic are they that they indeed will be able to move forward maybe in March, April or 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?

Speaker 2

Yes. 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 heightened renewed encouragement within the sector. It's not to say timing as we've kind of indicated over the last twelve months isn't going to be somewhat more suspect than that big wave that hit us back in 2022, '20 '20 '3 all at once. So I think there's still that question of timing and dot n i's and cross n t's to get through it.

Speaker 2

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 and 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 couple of years. Not to say timing won't be an issue. I can't sit here today 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.

Speaker 6

Okay. 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?

Speaker 2

I hope not. And that's kind of sure, John Franzreb's earlier question is the reason we put renewed energy into the acreage that we own here in Houston and how quick can we we 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 unlike previous expansions we've done out there. We've gone deeper with more engineered soil. We came up with a way to kind of only go a foot and a half down as opposed to a three foot dig that Powell historically has done over the years out there that supports the need for the weight displacement that we require.

Speaker 2

And so and we've got some really good supplier folks contractors and good quarry, spend some time in 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 make sure that we're 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 last couple of 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 and when that wave were to kind of pile up on each other that we can maximize.

Speaker 6

Okay. So when you look back at your the slew of projects that you were awarded back in 2022, '20 '20 '3, when you look at it in aggregate and the opportunities that are out there, would you see it being materially larger than what you saw back a few years ago?

Speaker 2

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

Speaker 4

Okay. Brett, thank you very much.

Speaker 6

You bet. Thanks, John.

Operator

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

Speaker 2

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.

Speaker 2

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.

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