Powell Industries Inc 2026 Q3 Earnings Call

Thank you, operator. Good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2026 third 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. It will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until August 11th. 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, August 4th, 2026. 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. 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, execution of business strategies. For more information, please refer to company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Thank you, Bobby. Good morning, everyone. Thank you for joining us today to review Powell's fiscal 2026 third quarter results. I will make a few comments. Then turn the call over to Mike for more financial commentary before we take your questions. Powell delivered a very strong third quarter, highlighted by a record for new orders in a single quarter, which in turn has elevated our backlog to over $2 billion for the first time in our 79-year history. Revenue grew 9% compared to the prior year. Our continued focus on productivity delivered a gross margin of 30.6%. Revenue growth in the quarter was once again driven by our commercial and other industrial and electric utility markets, with continued strong results in the oil and gas sector.

Each of our core end markets are exhibiting high levels of activity. The nature and scope of these projects are central to Powell's core competencies. The electric utility market remains very active, underwritten by structurally undersupplied power demand, while data center order activity for Powell has clearly inflected higher relative to just one year ago. Meanwhile, in our industrial end markets, the growing importance of U.S. LNG exports in the global energy landscape remains supportive of demand for the electrical infrastructure required across the natural gas supply chain. Overall, Powell was awarded a record $934 million of new orders in the third quarter, which is nearly three times higher than the prior year and nearly double the order total from last quarter.

Included in this order total is the previously announced mega data center order, which is in excess of $400 million for phase 1 of a multi-phase behind the meter design of on-site generation assets. Powell was awarded $75 million for the electrical distribution equipment supporting a new petrochemical facility for the production of fertilizer, and we received an award of approximately $60 million for a new LNG liquefaction facility. Both of these projects are located along the U.S. Gulf Coast. Outside of these three mega awards, our order book in the quarter was comprised of more than $350 million of new awards balanced across the market verticals in which we compete and a testament to the volume and diversity of our order intake.

Our backlog is now nearly $2.4 billion, again, the highest in Powell's history. It is notable that we have booked over $1.8 billion of new awards over the past three quarters. The visibility provided by our backlog continues to extend as we are booking awards that we'll be executing deep into our fiscal 2028. The order book also remains balanced across the Powell footprint, which, combined with actions we are taking to create incremental capacity, will improve opportunities to further drive productivity across our facilities. Those actions include a lease that we entered into late last year, providing an incremental 30,000 square feet of manufacturing capacity near our Ohio facility. Part of that agreement included the option to expand that lease, which we expect to execute in response to accelerating order activity.

In April, we entered into a lease agreement for a facility near our Houston facilities that is providing another 50,000 square feet of manufacturing capacity. We are now operating two satellite engineering offices around the Houston Metro area to add critical engineering talent to our world-class electrical and mechanical engineering and design teams. These facilities are strategically located in the energy corridor and North Houston to expand our coverage of the metro area. Lastly, the expansion of our Jacintoport facility that we announced one year ago is nearing completion. This investment will add 335,000 square feet of capacity to initially meet the accelerating demand for custom Power Control Rooms for the LNG market. However, over the long term, this capacity is fungible and can be utilized to serve our customers across any of our markets.

We expect the work at Jacintoport to be completed in the next month or two and for utilization to ramp fairly quickly. When fully utilized, we would expect the expanded yard to support well in excess of $100 million of incremental annualized revenue. Each of the incremental initiatives that we have taken across the company over the last 12 to 18 months will result in an expansion of our total footprint of manufacturing office and warehouse facilities of over 20% by the end of fiscal 2026 as compared to the end of our fiscal 2025. During our third quarter, the board has authorized the acquisition of a lease facility that will support approximately 300,000 sq ft of manufacturing space. Over the last several quarters, our manufacturing and service leadership teams have progressed several options in proximity to our existing facilities.

We are planning to have this future facility available for manufacturing activity late in our second or early third quarter of our fiscal 2027. The facility will be supported by increased fabrication throughput as part of a previously announced $8 million investment in new equipment and upgrades at our Moseley facility. We continue to evaluate the prospect of a greenfield Powell-owned facility that would require $70 million-$100 million of capital and provide upwards of an owned 250,000-300,000 sq ft factory, which would also support increased fabrication. This planning process continues to progress, and we expect to make a decision in the near future. Our M&A pipeline also remains healthy and growing, and we are evaluating a number of opportunities to better position us within key growth markets. These include complementary products and/or capabilities to our current portfolio or oriented toward building out our growing services franchise.

Our efforts here are tempered in part by what we regard as rich valuations across the space, though we continue to engage where we see value and a strategic fit. In closing, we are very pleased with our third quarter results. Commercial activity in our core end markets remains strong, underpinned by durable and secular demand drivers that should continue our momentum as we close fiscal 2026 and prepare for our fiscal 2027. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail.

Thank you, Brett, and good morning, everyone. In the third quarter of fiscal 2026, we reported total revenue of $312 million, compared to $286 million, or 9% higher versus the same period in fiscal 2025. New orders booked in the third fiscal quarter of 2026 reached a record high of $934 million, which was anchored by the $400 million-plus data center order that was awarded in April and discussed in our prior quarter release, as well as two additional core industrial mega orders booked during the third fiscal quarter, one for an LNG project for roughly $60 million and the second for a petrochemical project totaling about $75 million. These wins, orders in the third fiscal quarter were higher by $572 million versus the same period in the prior year and higher sequentially by $445 million.

The resulting book-to-bill ratio for the third fiscal quarter is 3.0 times, while this ratio on a fiscal year to date basis is 2.2 times, with reported backlog reaching a new high of $2.4 billion at the end of the third fiscal quarter, $967 million higher versus one year ago and $619 million higher sequentially. At the close of our third fiscal quarter, our core industrial end markets across petrochemical and oil and gas represent 30% of the total backlog, while the electric utility and commercial and other industrial markets each represent 24% and 40% of the $2.4 billion of backlog, respectively. Turning to revenue. Compared to the third quarter of fiscal 2025, domestic revenues were higher by $26 million, or 12%, while international revenues were slightly lower by $1 million to $61 million on the softer Canadian market.

From a market sector perspective, revenues were higher by $27 million, or 54%, in the commercial and other industrial market versus the third quarter of fiscal 2025. While the electric utility market increased by $14 million, or 18%, versus the prior year. Across our core industrial end markets, the oil and gas sector was relatively flat versus the prior year, while the petrochemical market was lower by 49%. The light rail traction power sector was 7% lower versus the same period one year ago on light volume levels relative to the total business. Gross profit increased by $7 million to $95 million in the third fiscal quarter of 2026 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 30.6% of revenue and was 90 basis points higher sequentially.