Powell Industries Inc (POWL) Q4 2021 Earnings Call Transcript

Welcome to the Powell Industries Earnings Conference Call. All participants will be in 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, Investor Relations. Please, go ahead.

Thank you and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2021 fourth quarter and full year 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 December 15. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, December 8, 2021, 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. 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 2021 fourth quarter and full year results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. Our fourth quarter financial results reflected a strong finish to a fiscal year marked by industry challenges and inflationary cost pressures. Importantly, we saw sequential improvement in key growth drivers of the business and we built upon our third fiscal quarter, which was an encouraging step in the right direction. All things considered, I am very pleased with the way we closed out fiscal 2021 and with the momentum we are carrying into the new fiscal year. In addition, we are seeing broad customer activity within our core industrial end markets slowly begin to recover from a period of significantly reduced activity following the start of the COVID-19 pandemic. We remain disciplined given the uncertainties that remain, but we are cautiously optimistic about our prospects going forward. In the fourth quarter, our revenue totaled $130 million, which reflects sequential growth of 12% and year-over-year growth of 13%. New orders of $121 million were higher by 17% sequentially and 61% higher than the $75 million of gross new orders in the prior year. Within our industrial markets, revenue from our petrochemical sector was up by 24% in the quarter, while oil and gas revenue was up by 29%. Our utility and traction markets continue to perform well, as they grew by 15% and 53%, respectively, compared to the fourth quarter of fiscal 2020. Each of these sectors have experienced strong growth over the last few years, particularly in Canada. Additionally, our aftermarket services team delivered a solid performance, helping to contribute to the strong fiscal fourth quarter. Our higher fourth quarter volumes allow us to achieve improved utilization rates, which, when coupled with continued strong execution, favorable project closeouts, and factory efficiencies, combined to help us achieve a gross margin of 17.4% in the quarter. That represents a sequential improvement of 260 basis points, but down from 18.9% in the prior year. The year-over-year decline is mainly the result of higher costs for raw materials, specifically steel and copper. We are also cognizant of the prospect for higher project costs in the coming quarters as we execute on projects booked during fiscal 2021. While encouraged by the recent price stabilization in many key commodities, we remain focused on being engaged with our suppliers and where possible, passing through inflationary costs. Throughout fiscal 2021, we have and we will continue to remain diligent around our overhead cost structure and further protect our margins to the extent possible. On a similar note, we are monitoring labor availability, which is causing upward pressure on wage costs across wide sectors of the economy. While labor inflation is not currently a significant problem for us, it may cause some margin pressure in the future, as our project volumes increase and we increase our headcount accordingly. Moving to the bottom line. We reported a net profit of $3.3 million in the quarter compared to $3 million in the prior year and a strong improvement from a net loss of $2 million in the prior quarter. We ended the quarter with $134 million of cash and short-term investments and essentially no debt, slightly higher than the prior quarter, retaining our strong liquidity position. We feel we have sufficient liquidity to fund our working capital needs as our markets recover as well as evaluate inorganic opportunities for Powell. We ended the quarter with backlog totaling $415 million, which is roughly 3% lower than the third quarter and compares to a backlog of $477 million at the end of the comparable period last year. We continue to see projects that had been previously placed on hold begin to show signs of life, along with requests to update pricing for several projects, mostly within our core oil, gas, and petrochemical markets. We view this as an additional positive step toward the longer-term recovery of our industrial end markets. Overall, while our financial results remain lower than pre-pandemic levels, we have been encouraged by the momentum we are seeing on a month-by-month basis. Our core end markets continue to see incrementally higher levels of activity, while our traction and utility markets have remained strong. Across the company, I am very pleased with the focus, attention, and overall solid execution across our operations as we remain committed to the success of our customers. Looking forward, we continue to believe the economics of natural gas will offer favorable opportunities in the LNG, gas pipeline, and gas to chemical process industries for the foreseeable future. In addition, as the world transitions to cleaner energy sources, we are participating in the development and planning of projects in the renewable markets of biofuels and biodiesel. These opportunities in renewable energy are smaller and more sporadic in nature but offer new markets where Powell is uniquely positioned as a provider of custom-engineered electrical products and solutions. We also expect to participate in initiatives around carbon capture and sequestration as well as the production of hydrogen as a fuel source, although these are more nascent markets that we view as longer-term opportunities. We are confident that our long history of innovation provides us with a unique advantage as we seek to pivot to these emerging markets that require new electrical equipment and solutions. As such, we remain committed to our R&D activities as the market commands changing needs for the distribution and control of electrical energy. We plan to evolve with that landscape by focusing our strategic initiatives around three core priorities. Our first priority is growing our electrical automation platform. We continue to build out our suite of digital asset management sensors through which we have made steady progress throughout fiscal 2021. Building upon our reputable history of electrical automation solutions, we have unveiled a suite of sensors to help our customers move to an event-based maintenance strategy. We believe that digital technologies like ours will continue to play a larger role in the future of electrical distribution, helping all of our customers achieve higher operating performance from their capital investments, extend the life of their equipment through predictive analytics and preventive maintenance, while also leveraging this technology to help achieve carbon reduction goals. The second of our strategic priorities is our focus on expanding our existing services franchise. Rather than building out a global services business that seeks to be all things to all people, we plan to focus our efforts on geographies where Powell has either an existing installed base with a leading market position or around select market sector opportunities where our services can provide differentiated expertise. Ultimately, we aim to move into the OpEx side of our customer spend through digital offerings that carry subscription-like models. Inorganic opportunities may also play a role here as we seek to bolster our market density, where we feel there is a compelling opportunity or where we currently operate but have historically underserved. And finally, our third strategic priority is focused on the diversification of our product portfolio through both targeting tangential applications that complement our existing product offerings, as well as expanding the scope of our product catalog into new electrical technologies. These efforts should help to de-risk the business by penetrating cyclical markets that are countered to the traditional energy cycles. Similarly, we seek to grow in this area both organically through R&D, as well as identifying inorganic opportunities that would be accretive to Powell. As we enter fiscal 2022, our priorities are unchanged. First and foremost is the health and safety of our employees, customers, and suppliers. Second, we remain focused on maintaining our solid execution performance, strong project closeouts, and factory efficiencies as we look to protect our margins in an inflationary cost environment. Next is the continuous evaluation of our current cost structure, supply chain and resource planning to optimize operations across the geographies and markets that we serve. And finally, as we look over a longer-term horizon, we are committed to thoughtfully executing on our three strategic priorities. These initiatives are centered around growing our presence in markets such as electrical automation, where we can leverage a rich history of innovation; expanding our services franchise by focusing on strategic and/or geographic opportunities; and diversification of our product portfolio through countercyclical products and new markets. We look forward to providing updates around each of these strategic initiatives as the year progresses. With that, I'll turn the call over to Mike to provide more detail around our financial results before we take your questions.

Thank you, Brett, and good morning, everyone. Revenues for the fourth fiscal quarter of 2021 increased by 13% to $130 million compared to last year's fourth quarter of $115 million, and were higher sequentially by $14 million as we experienced a strong year-over-year increase across our utility and traction end markets. Net orders for the fourth fiscal quarter were $121 million, $64 million higher than the same period one year ago on a continued recovery across our core industrial end markets. These net reported results reflect the fourth quarter book-to-bill ratio of 0.9 times. Reported backlog at the end of our fourth quarter was $415 million, $62 million lower versus the same period in the prior year. This year-over-year backlog reduction is driven primarily by the ongoing execution of the large industrial project currently in our backlog as well as a lower orders cadence that we experienced throughout fiscal 2021. Compared to the fourth quarter of fiscal 2020, domestic revenues of $94 million increased by $15 million or 18% versus the same period one year ago, while international revenues increased by 1% as we experienced broad strengthening across all of our core end markets versus the prior year. More specifically, versus the prior year, revenues from our industrial sector increased by 27%, while the utility sector was higher by 15% and traction revenue increased by 53%. The year-over-year volume increase across the industrial sector was led by a 24% increase in petrochemical volume, while core oil and gas was higher by 29% versus the same period a year ago. We reported $23 million of gross profit in the fiscal fourth quarter of 2021, which was higher by $800,000 or 3% versus the prior year on stronger volume. Gross profit as a percentage of revenues decreased by 160 basis points to 17.4% of revenues in the fourth fiscal quarter compared to one year ago. This reduction in the margin rate was attributable in large part to commodity pricing pressures as well as an unfavorable year-over-year project mix. These variables were partially offset by productivity gains recognized across many of our manufacturing and service entities. Selling, general, and administrative expenses increased by $669,000 or 4% versus the prior year, attributable to an uptick in commercial activity and the associated travel and living expenses. SG&A expenses were $17 million in the fiscal fourth quarter or 13.1% of revenue compared to 14.2% of revenues a year ago on the higher volume in fiscal 2021 as well as our continued spending discipline. On a net reported basis, fiscal fourth quarter net income was $3.3 million or $0.28 per diluted share. We generated $9 million of free cash flow in the fiscal fourth quarter, driven by strong working capital performance in the period. CapEx spending during the quarter was $451,000. Now recapping our total year fiscal 2021, revenues of $471 million decreased $48 million compared to the prior year. Orders were $404 million, 30% lower versus fiscal 2020 with the variance driven by the large industrial order that was booked in the second quarter of fiscal 2020. Gross profit as a percentage of revenues decreased by 230 basis points to 16% of revenues as a result of higher commodity costs, lower volume leverage, and a shifting product mix across the business in fiscal 2021. Selling, general, and administrative expenses were lower by $400,000 versus the prior year. Overall, net SG&A expenses as a percentage of revenues were 14.3% in fiscal 2021 versus 13.1% in the prior year on the lower revenues. We reported net income of $631,000 or $0.05 per diluted share compared to $16.7 million or $1.42 per diluted share in fiscal 2020. Total fiscal year 2021 free cash flow was a usage of $33 million versus a cash generation of $67 million in the prior year. At the end of fiscal 2021, we had cash and short-term investments of $134 million, $45 million lower than our fiscal 2020 year-end position. Long-term debt, including current maturities, was $400,000. As we enter fiscal 2022, we remain optimistic that our core industrial end markets will continue their gradual recovery delivering improvements in terms of order volumes and market pricing versus fiscal 2021. Furthermore, as we continue to manage through supply chain constraints and cost escalation headwinds in the current environment, we anticipate that these pressures will subside later in fiscal 2022. Based upon these variables as well as the usual seasonality that we experienced during the first fiscal quarter, we do anticipate that the second half of fiscal 2022 will be stronger than the first half. And finally, our liquidity position remains solid and the strength of our balance sheet is exceptional. Considering this as well as the current market environment, we continue to explore both organic and inorganic opportunities that will enable the business to grow and diversify our product and service offerings in line with the core strategic initiatives that Brett outlined. At this point, we'll be happy to answer your questions.

We will now begin the question-and-answer session. The first question comes from John Franzreb with Sidoti & Company. You may go ahead.

Good morning, guys. Thanks for taking the questions.

Good morning, John.

Actually, I'd like to start with the opportunity pipeline that you're seeing out there. It seems like you're more encouraged about an improving booking profile as fiscal 2022 progresses. Why is that the case?

Well, certainly, compared to this time last year, there is more RFQ activity. There's more work being done on jobs to plan. The one part that's still cautious, John, is the actual timing of funding. So, there's still this hesitation at the user financial side to understand their ultimate timing. So, still lots of cost out. We've talked about that last couple of quarters. A lot of redos on the projects, rescoping, taking a look at it as they try to get the return. So there is more activity there. So that has buoyed our confidence that things seem to be headed in the right direction. Our big question still is timing.

Okay. And are there any large projects of note out there that you think might materialize within the next six to 12 months?

There are some big projects out there, and I'll probably say more in the next 12 months. And if they come in earlier, that would be great. There is that possibility if the world keeps going in a positive direction economically and, of course, all of the challenges in logistics-wise and shortages in labor and everything else can pile in today, but there are some big projects that look like they're going to get moving here in the foreseeable future.

Great. And just on the gross margin in the fourth quarter, especially considering the commodity headwinds, I was surprised how strong it was. Was there any significant other items, such as project close out benefits or something like that in the quarter that moved the needle one way or the other?

Yes. Hi, John. Commodity inflation actually was a headwind of about 100 basis points. But across the system, we recognized terrific productivity. And really, the project close outs and the productivity really offset the commodity inflation impact.

Yes, I agree with the Powell team. Operationally, the quarter was very strong across all our groups. Everyone was performing at their best, and the company did a commendable job.

Got it. And just one last question. The services side of the business, how much of sales did it represent for all of fiscal 2021? And Brett, what kind of targets do you have for that part of the business in the coming, say, two to three years?

Yes. First of all, the majority of our service business is historically short from when we enter the market. It's primarily focused on installation and commissioning. Over the past five to eight years, we've been working on shifting towards life extension and utilizing our equipment expertise. Our objective is to enhance margins and countercyclical capacity by transitioning into the operational expenditure side to stay relevant with the demographic changes occurring at our clients' sites, while also utilizing both technology and personnel effectively. From a volume perspective, it can fluctuate significantly because our service business is still largely tied to that short timeframe of installation and commissioning, which can account for 15 to 25 percent of our total revenue. However, it remains highly cyclical due to its close association with installation and commissioning.

And that John is also when we talk about service, it's not just basic maintenance. It includes selling aftermarket parts and related items. So the total contribution is in the range of 15% to 20% or even higher.

Okay. Thanks guys. I’ll get back into queue.

Sure.

Our next question comes from Jon Braatz with Kansas City Capital. You may go ahead.

Good morning, Brett, Mike.

Hey, Jon.

Good morning, Jon.

Brett, could you discuss the traction market? There was a notable increase this year. How do you foresee that evolving? Do you anticipate it being maintained? Will the infrastructure bill have an impact on that? Could you provide some insights on the traction markets?

Yes. Regarding the traction market for Powell, a couple of years ago, I mentioned on the call that the approach to this market has been disciplined. This is a market where funding often comes from government entities, both local and federal, and there are many layers of contracting, which adds some risk by the time a project reaches Powell, as we are several layers deep in the contracting process. This aspect hasn’t fundamentally changed. However, we have excelled in our operations. Over the last few years, our growth has largely come from increased penetration into Canada. In contrast, our US domestic business has remained solid but has not experienced significant maintenance. We are applying our disciplined approach in the market and bringing that expertise into Canada, which has contributed to our revenue growth in recent years. We are carefully monitoring the infrastructure bill to see if those matching funds will facilitate project advancement. There is still ongoing remedial work across various agencies. I remain cautiously optimistic about the potential for projects to move forward, which could allow Powell to take advantage of these opportunities. We will focus on pursuing projects that align well with the chosen contractors for those agency jobs.

Okay. Brett, is the Canadian work sort of running off, or are you seeing new orders at the same rate that you've seen earlier?

It's not as rapid as we pivoted after the downturn in oil and gas in 2014 and 2015, moving our focus east and developing strategies to explore those markets. We did experience significant gains, although we aren't ramping up as quickly as we did initially. Nevertheless, it remains steady from east to west. Yes.

Okay. And considering the new orders and their pricing, assuming that inflation and material costs start to stabilize or decrease, are you satisfied with the current gross margins? Do you expect them to be slightly higher for the new orders we have secured?

In the second half, we are definitely feeling pressure from the first half. We have had some success in pushing through price increases, but it's not consistent across the board. Maintaining competitive pricing in the short term has proven challenging, as it was in the last couple of quarters. I recall discussing this throughout fiscal 2021, and we began to notice some pricing improvements in the spring that continued throughout the year. We are making efforts to implement some price increases, as everyone in commodities is facing similar issues. Our main challenge is managing wage costs and logistics, not only for the commodities we process into finished products but also for materials we purchase for substations. We deal with a lot of third-party expenses that we don’t produce ourselves, and these can come from various global sources, while our own operations are more localized. Therefore, we need to examine these jobs more closely at the RFQ stage to fully understand the challenges. This complicated situation will likely persist in the first half.

Okay. Okay. And one last question on some of the new opportunities that you discussed, such as the biofuels, renewable energy, renewable fuels, and all that stuff. Are you actually currently bidding on some work, or secondly, have you won any work in those areas?

We currently have a few biodiesel projects in progress. In addition, we are involved in bidding for various biofuels initiatives, including carbon capture, sequestration, and hydrogen projects. These opportunities are being discussed across the US, Canada, the Middle East, and parts of Northern UK. However, they are still in the pricing phase as companies assess how to move forward with these projects. Our competitors are making strides, and we are evaluating how we can effectively participate in this market. We believe we have a promising solution, but many of these projects are a bit further out compared to our biofuel conversion efforts.

Okay. That’s all. Thank you very much.

Okay Jon.

Our next question comes from John Deysher with Pinnacle. You may go ahead.

Good morning and congratulations on a nice way to wrap up the year. That was a solid quarter.

Thank you John. Strong performance by our teams.

Good to hear. Brett, regarding the strategic initiatives, correct me if I'm wrong, but this is the first call where you've detailed what you're aiming to achieve. I have a couple of questions about two of the initiatives. One is the electrical automation platform, which I believe is initiative number one, involving a suite of sensors and predictive analytics. Is that product available now? Has it been rolled out?

So first, John, yes, this is the first complete implementation of the three priorities we have been focusing on over the past couple of years. We have been refining our approach within the Powell team and with the Board. Regarding electrical automation, the sensors are mostly deployed. We have been progressing over the last couple of years, introducing sensors incrementally. We deployed another one this past year and we are learning as we proceed. The sensors are being introduced to the market across various sectors and regions. We are discovering ways to enhance the product, the sensor itself, and the added value, which involves transforming the data from these sensors into actionable insights for our clients. We are receiving positive feedback from our clients, which is helping us understand what we need to do next, whether that be through organic growth or exploring other options to help our clients utilize this information more efficiently.

Is the competitive landscape different from the core business?

When it comes to automation, major multinationals have an extensive portfolio that spans a wide range of areas. In electrical substations, particularly in medium and low voltage work that we have been doing for 75 years, although we face competition, our historical knowledge and understanding of distribution in our voltage ranges give us a unique advantage. We have concentrated on the intricacies of monitoring various parameters that facilitate a shift from reactive to preventative maintenance, especially in the realm of automation asset management. This particular aspect is where we believe we stand out. Our technology, while not the only approach available in the market, is designed to be more reliable and actionable for our clients. The feedback we have received over the past couple of years has been encouraging, showing consistent and positive data results. However, we are now tasked with determining how to advance further, particularly in a way that may involve competing against previously unfamiliar challengers in the market, and we are actively considering our options for that development.

Okay. Did that business generate significant revenues in the past fiscal year?

No, I wouldn't say they come with a lot higher calories, but the revenues from these sensors are much lower compared to a substation order. So the calories are higher. Our goal is to continue to progress them into the market, either directly or through other channels. We're also developing other ways to introduce them to the market beyond direct sales and distribution, which hasn't been our approach in the past but is necessary for the future. Taking that next step would certainly help us achieve our goals.

Okay. That makes sense. And on the third strategic initiative, diversifying your product offerings, I think you talked about new electric technology products that were countercyclical to, I guess, your existing revenue base. What are you talking about there? Can you give us some specific examples of areas that you'd like to enter?

Sure. There is a lot of competition, John. If you look at our investor deck, our core products are primarily focused on the medium voltage primary switchgear sector. Over the past couple of years, we have not produced low-voltage breakers, but many are aware of that. We have invested significant effort into developing low voltage switchgear and how it integrates with medium voltage and motor control. We are collaborating with our partners and working on R&D to enhance this aspect. This has also led to our expansion into traction and sustained distribution in utilities, considering the evolving grid with larger renewable energy sources and the bidirectional needs of the grid. While we are not getting into EV charging at the device-to-car level, we are exploring its future implications for the grid concerning primary and secondary switchgear. We are focused on developing products and solutions that meet the future demands of the grid. Whether it be the industrial grid of a facility or a utility grid, we believe there are opportunities in the markets we are in where we can make a significant impact.

Okay. And I guess you've mentioned R&D drives a lot of this. Is the R&D budget going to go up going forward?

In the past couple of years, we have recently redirected our R&D budget towards some development initiatives, and we've invested more into this organically. Our three priorities include shifting internal resources to advance these technologies, spending on learning, and exploring innovative design ideas. While we are also considering potential inorganic opportunities, our current focus is primarily on organic R&D.

Okay. And I guess finally, has there been in terms of people, has there been a dedicated person assigned to these strategic initiatives that perhaps reports directly to you and the Board, or are these tasks assigned to the people who are already running the underlying units?

So we don't have a person dedicated to strategic development. It is definitely a position we've talked about with the Board's council. But today, it's a mix between the management team and some committees that we put together of the up and coming generation within Powell. And they are doing a great job and helping us kind of 360 some ideas. And so that's the process we've had to-date, but centralizing that in the future is definitely something we're considering.

Okay. That's sounds promising. We wish you continued good luck.

Thank you, John.

Our next question comes from John Franzreb with Sidoti & Company.

Yeah. You may go ahead.

Yeah. Brett, I wonder if you could expand upon the inorganic growth opportunities. What types of businesses are you targeting maybe sense scale, either in revenue or how much you're willing to pay for them? I think that would be helpful.

So all three priorities we outlined, including the electrical automation platform, diversified electrical products and solutions, and the services franchise opportunity, are areas we are focusing on. Recently, we've been concentrating more on the products and automation side as we build our funnel and teams, particularly in automation due to previously mentioned customer feedback. We are seeing customer demands that aren't currently met in-house at Powell. To address these issues, we need to invest more time and attention in the market right now. In terms of size, I’ll let Mike provide some insights, especially regarding the capital application framework.

There are several scenarios that could emerge based on the strategic initiatives that Brett outlined. We have discussed the capital framework with the Board and have evaluated our appetite. This could involve smaller investments as well as potentially larger ones. Ultimately, it depends on finding the right accretive opportunity that aligns with the Powell portfolio.

Yes, we have made a few comments about being disciplined, and some aspects of the automation space are quite costly at the moment. We need to assess whether they align with our strategy. As we continue to refine our process with the Board and management team, I believe discipline will remain a key focus while we advance our initiatives. We can act quickly, but we need to be smart about it.

Got it. And coming off a good fourth quarter results. We know about the seasonality and it's embedded in your business. But allowing for some sort of drop in sequential revenues. What is the decremental margin profile look like in your eyes? Are we staring at results being written in red ink for a quarter or two, or how does that kind of play out as we get back to the second half of the year, which we expect to be more profitable than the first?

Yes, John, as we look ahead to 2022, there are several factors we are monitoring. First is the traditional seasonality we usually see in the first quarter. Second, considering the order trends from fiscal 2021, the first half of 2021 was quite weak, although there was some improvement in the third quarter, leading to $121 million this quarter. The lingering impact of those lower orders is putting some pressure on utilization. Third, we need to manage the inflationary pressures, which we believe will ease in the second half of the year. Additionally, we have priced in many of the commodity cost increases into our models. However, due to the long cycle nature of our business, these costs will start to exit backlog during the second half. Therefore, overall, we expect the first half of 2022 to be softer than the second half.

Okay. Thanks a lot, guys. Thanks for taking my follow-ups.

Okay. Thanks.

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

Thank you, operator. As you've heard from both Mike and I this morning, we are entering fiscal 2022 with two consecutive quarters of encouraging financial results. And we are growing incrementally more comfortable that our core industrial end markets are recovering and setting us up for an improved financial future. We remain focused on maintaining high levels of utilization across the business, strong project execution, and closely watching our cost structure to enhance and protect our efficiency gains over the past year. With that, thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking with you all next quarter.

The conference has now concluded. You may now disconnect.