Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions]. 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.

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.

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…

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% [ph] 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…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question today will be from John Franzreb with Sidoti & Company. Please go ahead.

Good Morning Brett and Mike, and thanks for taking the questions. Brett, I'd like to start with one of your comments in your prepared remarks about your booking projects into fiscal 2025. That made me wonder, what does the timing of revenue recognition kind of look like today? Is this just on the backlog profile? I mean, what's the bell curve kind of looking at based on your current bookings?

John, as we look at the growth in the backlog and as we look out into time on how we're plotting the revenue, no big sparks. It -- with the recovery in the core market there in the last year going from last summer and we kind of flatten these out and we look at how we're managing factor capacity labor capacity. We -- we've been able to work effectively with our clients to time it out. These are larger projects; normally have a longer burn anyway. But I’ll just take the link spikes. It's laid out pretty consistently out into time.

Okay, great. And then another thing that you mentioned was about, and you just mentioned it again, the labor market. How's your staffing look today? And will you be staffing up at all anytime in the near future to kind of capitalize on the jobs that you're winning?

Yes, we are. I think we talked a little bit about last quarter but, if I break it into two parts, both the factory support teams and then the front end part on engineering and project management. That's kind of the areas we constantly are looking at every week. It's kind of shifted a year ago. We had some trouble in various factories with some of the talented folks out in our in our in our factories, helping us to produce the goods and get out to our clients that, that has improved as of last summer. And as we build the backlog into the fall, we're out. We're out building some of the front end teams right now. And that's been a little bit more of a challenge, but so far I've been able to navigate it.

Okay, those were my two questions. So I'll get back into queue. Thank you.

Thanks, John.

Thank you. [Operator Instructions] The next question is from Jon Braatz from Kansas City Capital. Please go ahead.

Morning, Brett, Mike.

Morning, Jon.

Mike, a couple of questions. So on the on the expense ratio, obviously, you're able to leverage off the sale, the top line. But even if, and it's even more impressive, given the $1 million increase in incentive comp. How do you -- how do you see that ratio going forward, the expense ratio going forward given the leverage that we saw here in the first quarter?

Yes, I think as we, as we navigate through fiscal 2023, and into 2024, we do expect volume to pick up in SG&A bucket; we manage very, very closely. It's, it's more of a fixed bucket, it's not necessarily got a lot of variability to it. It hurts us when volume is down; it will bump up to 14 plus percent as a percent of revenue. But as volume picks up, we like to see that in a 13% range.

Do you say mid 13?

Yes.

Okay. It’s welcome. Okay. Secondly, sort of a big picture standpoint, when you look back at your history, and I know today is different than what it was back in 2012, 13, 14, when you were hitting on all cylinders, and in your operating margins were what upper single digit, something like that, and your gross margin around 20%? When you think about the business today, compared to then structurally and fundamentally, how, how different is the business today? And is there a capability of being a returning to those margins as we as we move forward here, and things begin to pick up on the top line?

Yes, certainly, we aspire to get back to those, those margin rates, Jon. But if you look at the business, fundamentally, how the business was structured the footprint of the business back in in 2012, 2013, it's much different. We have a Canadian presence. Now, we didn't have one back at that point in time. We built a sizable braker facility here in Houston. So there are some differences. And we've divested we divested an automation business some time back. So we've, we've changed the mix of the business. So that's, that's one variable. The other variable is the amount of oil and gas volume, particularly offshore, was really quite high back in 2012, 2013. Price was, was very robust. And that environment hasn't necessarily returned. I don't expect it to return to those levels anytime soon. So there are some different dynamics when you compare the two points in time.

Okay. Are there anything -- is there anything different sort of on a positive note, compared to today, compared to eight years ago, nine years, 10 years ago?

I mean, absolutely. I think our capacity today is it's very robust. I mentioned the Canadian facility. We've penetrated the utility markets up in Canada and doing a lot of work as the oil and gas infrastructure comes back. So yes, there's a lot of positive, a lot, a lot of positives with respect to the current structure today.

Okay. All right. Thank you very much.

[Operator Instructions] The next question is a follow up from John Franzreb from Sidoti. Please go ahead.

Yes, I guess, again, going to prepared remarks. I think Mike might have mentioned something about utility and the industrial end markets seem to offer the best near term prospects. I just wondered it's maybe some more color about the overall opportunity pipeline and how it looks today versus three to six months ago. Any kind of updated color on the puts and takes and what's driving the on-going bidding process in the near term?

John, I'll take that one. Brett and I can follow up with anything he wants to add here. The core market is, as we noted, also in the December comments. I think there was a question then about, what's the outlook. I think it's going to be robust to the balance of the fiscal year is, there's a lot going on, we're these are complicated jobs. This is how policy over the last 25 years. And again, on the industrial front, these things have a life. There's a lot of people lining up. I don't think they're all going to get through over the next, three to five years, but there's, there's a lot of momentum built. And we're, we're thinking the things there. The industrial – on the utility side, I think, I think the jump in the revenue, this past quarter is really looking back in time out of COVID, sort of the return of a nice cadence to the business and the process that we've built over the last decade. So that's sort of that methodic return to the utility piece. A little bit more of a variable is this newer sector that we're reporting on now, which probably has some of the best price right now, because it's a little faster turn. And it's a little more uncertainty on how that factors into the profile of the backlog and turning on the revenue line next year to two years. But it is, it is a market that we we've always participated in, it's just become a bigger part of our pie today. And there's still a lot of activity, but I'd say higher uncertainty there. So but as of this last quarter, still pretty solid revenue one.

Anything, anything to add? Just want to make sure.

I don't have anything to add. I mean, they the other, the other, the commercial and other industrial bucket that went up 202%. That I mentioned my prepared remarks. It's really driven by the items that Brett mentioned, data centers and things of that nature.

Okay. Okay. Fair enough. And when you think about the, maybe this, this goes back to the gross margin profile, is it a, is it a bigger function of the pricing environment, the competitive landscape, the inflationary environment, or the mix that's going to keep you from hitting those higher 19%, 20% gross margins? If you kind of maybe rank them all just your thoughts about those three pieces?

That's a good question. It's, it's certainly all three. The price takes time, because of the project, the way we kind of laid off the old revenue, and then the phasing of the timing of that revenue, so it has an impact. And I think at some point, we'll see it. I mean, the pricing environment, for all of our sectors is better than it was certainly, a couple of years ago, it's not, but there'll be a limit to that, as there always is another cycle. Mix, mix, to me is probably a big issue. But lately, you can't just count the inflation piece, it is really hit a year ago in Q1. On the engineer side, the steel index is back up more recently, something we're really attuned to, to watching the incoming steel prices, and how that lays out into the future piece. That that probably has as much attention for us anything on the cost side right now. We're, we're heavily [Indiscernible] in the input costs. Mike?

Yes, if I could add here, John, I think both the pricing initiatives and the cost management, we've been really focused on that over the last 12, 24 months starting to see that exit the backlog. Now, when you look at the quality of the backlog with those elements in it, we're really happy with where we are. The other item that that is, can't be discounted, as you look across the facilities in the around the power landscape. Most of the plants, if not all, the plants have very healthy backlog. And with that increased volume, we should we expect to see volume, leverage productivity cost efficiencies come through the system. So again, we aspire to get up to that, that 20% level. And those are those are kind of the levers that we would look to get there.

Got it. And I guess one of the parts that may get you there is I guess, maybe the service side of the business. And just a quick update on what percent of revenue is that kind of coming in at the current quarter. Any thoughts, updated thoughts about how that business is going to play out for the balance of the year?

You're building on the momentum that we kind of talked about last year. The strategic initiative that embodies a service piece you have you have the kind of the stuff that tags on to the existing business, which is still the predominant part of the service revenue. The installation, transitioning parts is the kind of short term stuff. The more strategic stuff is going well and we hope that in the coming quarters we’ll be able to share more as we feel confident that sustains. We're still running on average annually 15 points, 20 points against the whole revenue profile. But we're, we're optimistic that that will sustain, as we hope strategically and be able to break it out and provide some more color about it. Because there are some things that we've noted throughout last year that we're taking some steps on that front to leverage the engineering fees to, to grab more spin with the client and more service capability as well. Not just winning the job, but really expanding our, our ability to provide value to our clients. So it's going well, and if it continues throughout this year, I think we'll be in a better position, towards the end of the fiscal year to really start talking about what structurally reporting we can make on a consistent basis going forward, John.

Okay, and if I may, just one last question regarding the cash uses of cash and, and potential M&A. Brett, some updated thoughts on what you're thinking about, and as far as the M&A market, you just mentioned you up the dividend as far as use of cash. But or you're out there aggressively looking, updated thoughts about maybe the size or the nature of any kind of potential acquisition?

We are out in the market, looking on the non-organic side. Again, our profile pile and operationally as well as in this process with the board and the conversations will continue to be, an overly or a conservative bent to our approach. There are things that we want to do and we think we can add end. There’s always the question of availability and affordability, and, of course our ability to integrate if we when we get to that point. So we are out looking, meanwhile, we aren't discounting? I know, this has been a question in the past, John, on the CapEx side. We had a little pop this last quarter. We see some opportunity, productivity wise, and the teams around the company invested in the business, I feel good about that. That'd be really good capital spent for the shareholder. So, and then and then the dividend? I think it's it's a directional step strategically, as we look forward over the next couple of years to take a step. We've shared that we're going to actively continue looking at that at the board. So this is a directional step. And, and we're going to continue to evaluate that in the coming years as we build the success behind the strategies and the core business.

Great. Thanks again, Mike and Brett thanks for taking my questions.

Good bye John. Take care.

[Operator Instructions] Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Brett Cope for any closing remarks.

Thank thanks, Jed [ph]. As you've heard from Mike and me this morning, we view our first quarter as a positive indicator for the rest of the fiscal year. The outlook for our core end markets is favorable and improving. While the project funnel for our non-industrial markets remains robust. A special thank you to the Powell team for their hard work, tenacity and incredible resilience. And of course, thank you to our customers for their business and their trust in our company. Thank you for joining us this morning. We appreciate your continued interest in Powell and look forward to updating everyone next quarter.

And thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.