Good morning. And welcome to the Powell Industries' First Quarter Fiscal 2022 Results Conference Call. Please note this event is being recorded. I'd now like to turn the conference over to Ryan Coleman. Please go ahead.

Thank you, operator and good morning, everyone. Thank you for joining us for Powell Industries' conference call today to review fiscal year 2022 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 16. 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, February 9, 2022, 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 expressed 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 2022 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. It has been a short 60 days since we shared our 2021 full year results and, in many respects, not much has changed over the last several weeks. Our first quarter financial performance reflected the usual seasonality and holiday disruption we are accustomed to seeing at the start of our fiscal year. It also reflects the more challenging cost environment that has arisen over the past year as we navigate broad inflationary pressures and supply chain challenges. Nonetheless, we saw further growth in new orders, which marks three consecutive quarters of rising order activity. We continue to experience steady levels of activity within our industrial markets. And while customers as a whole remain tentative and cautious with their capital expenditure plans, we are optimistic that this important market sector of Powell will continue the steady recovery that started midway through last year. New orders placed in the first quarter included $122 million of gross new orders, partially offset by a $14 million scope reduction on a previously booked project for a total of $108 million of net new orders. The customer requested scope adjustment is for a large industrial project previously booked in fiscal 2021. The $122 million of gross new orders is modestly higher than the prior quarter and represents an increase of 34% from the prior year. Meanwhile, the traction and utility markets in which we compete remain active and have been strong offsets during these periods of lower industrial market activity. We expect to continue in fiscal 2022 our strategy of steady, methodical growth in the utility distribution market in all three of our home markets which include the US, Canada, and the United Kingdom. For the traction market, we will continue to leverage the strength of technical solutions and proven execution capability balanced against prudent commercial risk management in the light and mid-rail projects throughout North America. In the fourth quarter, our total revenue was $107 million, which was unchanged compared to the prior year. Within our industrial markets, revenue from our oil and gas sector increased 7% compared to the prior year, while the petrochemical sector increased by 88%. Taken together, our industrial segment revenue increased by 23% versus the prior year. Revenue from our utility and traction sectors fell by 24% and 15% respectively, as continued activity was overshadowed by a difficult comparable period in the prior year. Geographically, revenue in the US saw year-over-year growth of 2% while revenue in Canada increased by 7%. Where we were less than pleased with the quarter’s performance was on the gross margin line, which was 12.6% of revenues in the current quarter, comparing to 17.1% that we reported in the same period one year ago. We are beginning to recognize revenue on projects booked in the first half of fiscal 2021 that are presently carrying higher raw material costs, which has created a near-term drag on reported margins. Our gross margin was also impacted by closeouts, which have benefited us in recent quarters but did not reoccur in the first quarter. Higher costs for raw materials, specifically steel and copper, continue to present challenges, as do higher costs related to supply chain bottlenecks. We remain focused on engaging with our suppliers and, where possible, passing through inflationary costs. We have and will continue to remain diligent around our cost structure and protecting our margins to the extent possible. On a similar note, we are monitoring the tight labor situation that is impacting a diverse range of industries across the economy. While the expected upward pressure on wage costs remains an added potential headwind, we have largely been successful working through these challenges across all of our manufacturing operations. We are closely monitoring this to manage costs and margins looking forward as we plan for future project activities. Moving to the bottom line, our lower gross profit led to a reported net loss of $2.8 million in the quarter compared to a net loss of $364,000 in the prior year. We ended the quarter with $102 million of cash in short-term investments and no debt. Our net cash position is lower than the prior quarter as we have put our capital to work while continuing to maintain an incredibly strong liquidity position and balance sheet, to which Mike will provide some additional details. Lastly, we ended the quarter with backlog totaling $416 million, slightly higher than the $415 million last quarter, and that compares to a backlog of $465 million at the end of the comparable period last year. 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. We believe our customers are growing incrementally more comfortable around deploying their capital spending; however, we are in a long-cycle business, which can sometimes mask what we believe are encouraging trends across the markets we serve. We continue to see a steady and measured recovery in our core end markets while our traction and utility markets remain active. Powell’s reputation was built and our excellence continues to be driven by outstanding service and a commitment to innovation. As the world transitions to an electrified future, I know that Powell will be able to leverage these assets in new markets and develop innovative electrical equipment solutions for new challenges. We remain committed to R&D spending to develop the solutions organically. We also have the option to deploy the strength of our balance sheet to broaden Powell’s product portfolio and diversify our end market mix. Last quarter, we formally introduced three strategies that outline our focus areas for the future of Powell. Our first priority is growing our electrical automation platform. 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 preventative maintenance, while also leveraging this technology to help achieve carbon reduction goals. We continue to build out our suite of digital asset management sensors and have achieved small but strategically important successes throughout fiscal 2021, as we develop this area of the business. Building upon our reputable history of electrical automation solutions, our customers will increasingly see our products as integral to the protection and longevity of their capital assets, and ultimately, their success. The second of our strategic priorities is our focus on expanding our existing services franchise; we plan to take a more selective and high-return approach, rather than building out a global services business that seeks to be all things to all people. We plan to focus our efforts around 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 optics side of our customer spending through digital offerings that carry subscription-like models, de-risking our financial profile, and creating stickier customer relationships. 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. Finally, our third strategic priority is focused on the diversification of our product portfolio by 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 will help to de-risk the business by penetrating new markets that are counter to the cycles of our traditional end markets. We will seek to grow in this area both organically through R&D, as well as by 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 ongoing evaluation of our current cost structure, supply chain, and resource planning to optimize operations across the geographies and markets that we serve. Lastly, as we look over a longer-term horizon, we are committed to thoughtfully executing our three strategic priorities and updating investors on our progress as appropriate. With that, I'll turn the call over to Mike to provide more detail around our financial results.

Thank you, Brett and good morning, everyone. In the first quarter of fiscal 2022, we reported net revenue of $107 million, flat versus the same period in the prior year. Gross new orders booked for the first fiscal quarter of 2022 were $122 million. Net new bookings for the first fiscal quarter were $108 million, $17 million higher versus the prior year, which reflected a current quarter reduction in net bookings due to a project re-scoping of roughly $14 million. As a result, our book-to-bill ratio based upon reported net orders was 1.0 in the period, with $416 million of backlog at the end of the first fiscal quarter, which was $49 million lower compared to the same period a year ago. Compared to one year ago, domestic revenues were higher by 2% versus the prior year to $82 million, while international revenues were 6% lower compared to the prior year, driven by lower project volume in Asia Pacific. In total, international revenues were $24 million in the first fiscal quarter. From a market sector perspective, revenues across our oil and gas and petrochemical sectors were higher by 23% compared to the prior year, while utility and traction sectors were lower by 24% and 15%, respectively, versus the first fiscal quarter of 2021. Gross profit decreased by $5 million to $13 million in the first fiscal quarter relative to the same period one year ago. As a percentage of revenue, gross profit decreased by 450 basis points to 12.6% compared to the same period a year ago, driven in large part by higher raw material costs, which added roughly $2.5 million of additional cost to the quarter, along with a substantially lower volume of project closeouts from backlogs. Selling, general and administrative expenses were $16 million in the current quarter, which is lower by $1 million versus the same period a year ago. SG&A as a percentage of revenue decreased to 15% in the current quarter on a lower cost base. In the first quarter of fiscal 2022, we reported a net loss of $2.8 million, or a loss of $0.24 per diluted share, compared to a net loss of $364,000, or a loss of $0.03 per diluted share in the first quarter of fiscal 2021. During the first quarter of fiscal 2022, net cash used in operating activities was $28 million, driven by annual variable incentive compensation, as well as the ongoing build-up of working capital for new projects and the projects currently in the manufacturing stages of production. Investments in property, plant, and equipment totaled $436,000. At December 31, 2021, we had cash in short-term investments of $102 million, compared to $134 million at September 30, 2021. Effective in the first fiscal quarter of 2022, the company held no long-term debt. As we look forward to the remainder of fiscal 2022, we maintain our cautious optimism relative to the continued recovery of our core industrial end markets. Additionally, we remain acutely focused on the supply side macro environment, as well as our internal cost management in order to help negate any ancillary impacts to the commercial landscape with respect to cost and pricing. Through these efforts, we do anticipate a continual recovery throughout the remainder of the year as we execute the backlog. Our backlog remains very strong while the orders cadence continues to improve compared to the prior year. Considering this, in addition to the strength of our balance sheet, we are well-positioned to improve our financial performance as we progress through the remainder of fiscal 2022 while also continuing to focus on our longer-term strategic imperatives, as Brett has laid out. With that, I will pass it back to Brett to say a few words.

Thanks, Mike. I would like to close out our first quarter prepared comments by recognizing Tom Powell’s upcoming retirement from our board and the legacy that Tom leaves not only at Powell but across the industry. Tom began his career with the company in 1964 and will be retiring from the Board of Directors effective February 16. Tom’s legacy is firmly rooted in our core values by which we have and will continue to achieve success. Customers first, respect for our employees, a can-do attitude, and a commitment toward continuous improvement will guide our company into the future. Tom, thank you for all of your contributions and support throughout my tenure with Powell. On behalf of the Board of Directors, the senior leadership team, and the 1,900 Powell employees globally, we wish you much health and happiness in your retirement. At this point, we'll be happy to answer your questions.

Our first question today comes from Jon Braatz with Kansas City Capital.

Good morning, Mike. Going back to the gross margins, obviously, I don't think anybody is really anticipating spectacular margins in the quarter given the rising cost environment. But it seems like in 2021, you faced rising costs, and it seems like something happened here in the first quarter that caused the margin pressure to be even greater. Could you elaborate on the drop in margins compared to the fourth quarter or the full year last year? It just seemed like it was there was something occurring in the first quarter that might have put some additional pressure on it. And the other question is, I think, Mike, you mentioned there were $2.5 million in added costs. As you look forward, how do you see the recovery of those $2.5 million in costs?

Sure, Jon. So, taking your first question on the degradation of the gross margin in the current quarter, really two primary variables. The first is the ongoing inflationary impact of our core input materials, copper and steel. If you look at the price increase or cost increase for us, copper over the last 12 months has gone up about 30%, and steel up about 60% just over the last year. If you go back even further, it's a little more, it's a little higher than that. But if you consider the long lead nature of our projects, as those commodities are increasing, we are concurrently raising our pricing and our estimating tools, but there is a lag. So, what we are exiting from our backlog today are really projects that we booked in late fiscal '21 and the first half of fiscal '21, which did not have the benefit of that incremental price add from the commodities. What we're seeing in this quarter will probably bleed over into next quarter as well as our projects at prior to any price elevations due to the commodities. So that was really the first headwind facing the gross profit and gross margin scenario for the quarter. Secondly, again, if you think about the order cadence that we had in late '20 and early '21, the orders cadence was much lower than it has been over the last three quarters anyway; it continues to strengthen. But the number of project closeouts, just due to the volume of orders that we booked back in late '20 and early '21 was much lower than what it is now. And that's exiting our backlog today. Where we had higher levels of projects in the prior quarters, we now don't have that same volume. That really impacted gross margin percentages, and those were the two things that influenced gross margin this quarter. As for the $2.5 million, we can't control copper prices, we can't control steel prices. We do have mechanisms in place to help mitigate and manage those costs, but clearly our levers are really price and overall costs in the plant. So that's what we're focused on. We're focused on controllable items and managing to the best we can the ones we cannot.

As you look currently at copper and steel, are you still seeing those costs increase? And then secondly, as you look at new projects coming on board, new orders, are you able, given the inflationary environment, to add the potential surcharge into the business to protect you a little bit better against the inflationary costs?

Yes. The first question, copper has leveled off over the past probably six months; it's stabilized into the mid-£450 pound range. Steel, on the other hand, has really gone quite high. We use a lot of steel as you can imagine. It's softened a little bit. So I'm not a commodities trader, but I can't imagine steel will continue to see the same extent of increases that we've experienced previously. From a pricing standpoint, we've taken and incorporated the commodities' increases in our estimating models. There is a lag due to the lead time of our products. But yes, we are transitioning those costs into our estimating models.

Our next question will come from John Franzreb with Sidoti & Company.

Good morning, Brett and Mike. Thanks for taking my questions. First, I'd like to say congratulations to Tom on his retirement; he was always fun to work with over the past 15 to 16 years. Going back to the gross margin question, I have two parts I want to follow up on. Firstly, can you talk a little bit about the competitive landscape? Is everybody raising prices? Is it becoming easier to implement those price increases through the bidding activity relative to six months ago?

I'll take that first one, John. It's Brett. Maybe a little bit. I think in the last quarter and the last two quarters, we were asked about price increases. We indicated that, in the second half of the calendar year last year, we started to see increasing levels of price competition. I can't say that has relented; I think there remains a fair amount of price competition due to the recoveries still being slow and methodical on the industrial side. However, where we are seeing opportunity is on the logistic side. There are numerous shortages, which is also a cost impact for Powell. But there is opportunity where we control things like our manufactured products. On the medium voltage side, especially in the substations, we are able to command a better price on those products where we have supply chain control, and we are still competitive in our abilities in the North American market. We are seeing some upside opportunity there.

Have you changed your buying patterns as far as buying steel, locking in pricing earlier as soon as you get the job, so you're not as exposed?

Yes, John, in fact, we do see a little bit of cache usage in our inventory as we lean forward and secure not only copper and steel, but some of the ancillary parts that are critical to our products, especially where we see potential shortages. We want to ensure we do not disrupt our manufacturing.

Less easy to work with is the labor cost increases. How has that impacted the gross margin?

At present, we really haven't experienced a material impact on margins with respect to labor. We are keeping a close watch on it; we do anticipate that, given the macro environment, this will be a variable that we have to manage.

Yes, availability, as we noted in the prepared comments, it is something we monitor. It varies from location to location. We do see these challenges, and as I noted, we have been working through it. It hasn't become a major factor we haven't been able to overcome, but it is something we watch closely.

Is it fair to assume that this is the low point in the gross margin profile? Should we expect another gross margin decrease below this one?

I don't know. I think the commodities, as we look at copper and steel, as I alluded to in John's question, if we buy forward, we buy at the best price we can procure. The pricing we incorporated in our tools mid-last year should begin to show through the system around mid-year this year, so we are positioned to improve our financial performance. That's what we would anticipate.

When you speak about improving the incoming bookings profile, when you look out, say, six months, where do you think the bookings profile will be the most favorable, and where are you most concerned six months from now?

A lot in that question, John. I still think we'll be talking about a methodical recovery in the industrial market. As you know, we saw improvements in our business mid-last year, and it has continued through the second half of 2021. No big changes in the last 60 days. The part I'm most concerned about in industrials are the larger projects. When will we see the global economic demand drive the type of investments we anticipate in the States, especially in the Gulf Coast? We're continuing to actively work with our engineering partners and end clients on those jobs, but there's still uncertainty about timing for those larger jobs. That uncertainty is my biggest concern for six months out. Meanwhile, the utility distribution market has been decent for us in the US and Canada, continuing to perform well. Traction has seen some self-constraints due to a different contracting environment with all the various levels involved. We continue to make progress on new market activity through new channel development and OEM channels that we support in the market.

Regarding your strategic priorities for expanding your services business, what is the current level of service revenue in the P&L, and what do you think is a reasonable target, say, two years from now?

So, I’m not ready to lay out a target yet because it's not a reportable segment. Our first goal is to get service into a true aftermarket reportable segment. Currently, when you include all other parts, it can represent about 20% of our total revenue, as this is closely tied to the equipment lifecycle within the first 12 to 18 months after installation. We are focusing on select markets, both in the industrial sector or in certain geographies where engineered obsolescence comes into play. We have great examples to support this strategy, where we go into clients and work with them to extend the life of their installed base, helping to leverage the engineering strength of Powell to deliver tailored solutions.

Good morning, everyone. Thanks for taking my questions. I was just curious regarding the three strategic initiatives. Were there any extra costs recognized that perhaps weren't there a year ago? I notice R&D went up a bit. But could you tell us if there are additional costs that were not there a year ago for those strategic initiatives?

John, no, not in the most recent quarter. It is foreseeable that in the future, although it won't be in the next quarter or two, that we could think about raising that portion of the R&D spend to achieve the strategic goal. However, we started on that path a couple of years ago. I came out early in the year and talked about targets. We ran into a technical challenge and had to retool our plan there. We are working on that now. When we get to that point, I'll definitely discuss it in advance. But not in the most recent quarter.

What level of revenue does the service revenue have to reach in order to be a disclosable segment of the total revenue base? Is it around 10% or 15%?

I think if we could sustain an aftermarket, again, not tied to the equipment life of 12 to 18 months, in excess of 10%, it would be challenging not to make it a reportable segment by our accounting team.

What would you refer to regarding project closeouts being less this quarter than a year ago? What exactly are you referring to?

Some of that is how Mike indicated earlier on in response to one of the questions. It's related to the timing of the larger projects we initiated at the end of 2020 and the first part of 2021. Some of it is a mix of timing and the logistical challenges that impacted completion timelines. This results in some jobs holding over for an additional month or two due to shortage or broader economic challenges. Typically, we experience a steady cadence of closeouts, but we did not see that in Q1.

At this time, there are no further questions. So this will conclude our question-and-answer session. I'd like to turn the conference back over to Brett Cope for any closing remarks.

Thank you, Gran. While the global economy remains challenged by lingering uncertainties brought on by the ongoing global pandemic, the subsequent rise in inflation, logistic challenges, and labor availability, Powell has weathered these conditions in the past and we are well-positioned to persevere through these challenges and emerge stronger in the future. The strength of Powell is our people, an incredibly talented team who underpin our operational strength across all of our manufacturing facilities. We are supported by a healthy backlog, a strong balance sheet, and strong relationships with our customers and suppliers. Additionally, we are focused on advancing our efforts in new and encouraging growth opportunities that will diversify our backlog and project mix going forward. With that, thank you for your participation in 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. Thank you for attending today's presentation. You may now disconnect.