Powell Industries, Inc. Aktie

Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I'd like to turn the conference now over to Mr. Ryan Coleman, Investor Relations. Thank you, and over to you.

Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2026 second 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 May 12. 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, May 5, 2026, 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 turn the call over to Brett.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2026 second 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.

The Powell team delivered another solid quarter of operational efficiency and order growth as the momentum we experienced at the start of our fiscal year continued through the second quarter. Activity levels across each of our core end markets remained healthy with notable strength in the quarter from liquefied natural gas projects, a mix of electric utility distribution and generation projects and also data center projects within our commercial and other industrial market sector.

Revenue in the quarter grew a steady 6% compared to the prior year and continued solid project execution across the company delivered a gross margin of 29.6%. We recorded $490 million of new orders in the quarter, bringing our midyear total to nearly $1 billion in new awards. I would also note that our order book in the quarter continued to be very well balanced across the markets in which we compete.

During the quarter, we were awarded 2 mega projects, one for a data center and a second for an electric utility generation project. Each of these projects are in excess of $75 million in value. The balance of the order book in the quarter was comprised of a higher number of small- and medium-sized projects. Our backlog now sits at $1.8 billion, 12% higher than the prior quarter and 33% higher than 1 year ago. The growth in our backlog now provides visibility well into our fiscal 2028. The composition remains healthy with a mix of projects of varying sizes that will help maximize productivity across our manufacturing plants.

As of quarter end, the electric utility market represented 30% of our total backlog, while the oil and gas market, excluding petrochemical and the commercial and other industrial markets each accounted for 29%. The diversification of the business in the electric utility market and more recent expansion of our commercial and other industrial market anchored by a demand driver from data centers are contributing to reduced cyclicality in the business, allowing us to plan beyond the current cycle and invest more broadly alongside our customers with greater visibility.

At the same time, our outlook for our core oil and gas market remains strong. We are in the initial phase of a multiyear build-out of LNG export capacity. We believe the structural cost and competitive advantages possessed by U.S.-based exporters has been elevated by the risk of multiyear long capacity impairments across the international markets and the need for importers to diversify and replace those volumes.

We are also cautiously optimistic that the petrochemical market is in the early stages of a cyclical inflection after several years of lower activity levels. We are seeing some activity in the gas to chemicals market and are further encouraged by recent upward price revisions within the global polyethylene market.

I'd like to take a moment to mention a commercial development that took place subsequent to quarter end. I am very pleased to share that Powell was awarded a mega project for the first phase of a new greenfield data center. The scope of this award is in support of a behind-the-meter design for the first phase of a planned multiphase campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell's history.

This award is a testament to our employees, our culture and the entire Powell team across the company as we assembled a multi-division, multi-country execution plan to meet the demanding time line on this project. To that end, recent order trends, our market outlook and our continued organic product development continue to support prudent additions in manufacturing capacity.

Last quarter, we signed a lease for incremental space located near our Ohio facility. This past quarter, we leased office space in the Houston Metro area, which will serve as a second satellite engineering center. This center complements our initial satellite engineering office that we announced and opened last year. The second center is geographically located to further enhance our ability to add critical members to our world-class electrical and mechanical engineering and design teams.

In response to the growth of our backlog, we are evaluating a smaller lease facility of approximately 50,000 square feet near our Mosley campus. This space would help support a new $8 million investment in fabrication equipment for short-term rapid expansion of our metal fabrication capacity. We have previously shared our efforts to evaluate a larger investment in a facility that would require $70 million to $100 million of capital and provide upwards of an additional 250,000 to 300,000 square feet of factory capacity.

While we continue this assessment, we are currently evaluating complementary options for bridging between short-term requirements via a leased facility versus a somewhat longer-term option of a greenfield facility build-out. We are being very thoughtful throughout this process and expect a decision within the next few quarters.

Meanwhile, the expansion of our Jacintoport facility is progressing on schedule. This incremental 335,000 square foot of capacity will be critical to ensuring our ability to support all of our end markets, but specifically by providing our oil and gas customers with a premier domestic facility to produce engineered-to-order power distribution solutions for both on and nearshore projects as well as continued support for offshore applications.

Operationally, our teams across our facilities are rising to meet the challenge of accelerating growth. We remain disciplined on the commitments we have made to our customers while staying focused on continuous improvement and driving incremental efficiencies throughout every step of our operations.

As noted earlier in my comments around the recent large data center award, Powell has a market-leading strength that is inherent in our people and internal collaboration. When our teams across our North American facilities come together, we are able to leverage our substantial footprint to tackle large challenges, either for a single project or a broad step-up in market demand as we are currently experiencing.

Critically important to our growth and future needs, I would also like to call out the increased efforts of our strategic sourcing and supply chain teams. It is essential that our team engages our partners to both broaden and deepen those relationships and optimize our supply chain in support of our future growth.

On the M&A front, we continue to evaluate a growing pipeline of inorganic opportunities that complement our organic initiatives and better position us within key markets. Candidates include complementary products and/or capabilities to our current portfolio or oriented toward building out our services franchise. Along these lines, our recent acquisition of Remsdaq continues to progress well and has quickly proven synergistic and accretive across the company.

Lastly, pursuant to our ongoing efforts to build a stronger, more diversified business, we have recently begun investing in resources to build a wider funnel of government-related work, including U.S. military and defense applications. These are markets with secular long-term growth drivers that typically carry recurring revenue profiles, which would be conducive to growing our services franchise.

We are in the early days of this effort, but believe our U.S.-centric supply chain, operations and workforce leave us well positioned to play a critical role within the markets that support our national security and defense. On a related note, we'd like to briefly commend the White House's recent presidential determination under Section 303 of the Defense Production Act, which formally designated both substations and switchgear among other electrical products and their upstream supply chains as essential to national defense.

Ensuring the domestic production of critical electrical gear is essential to America's ability to deploy large-scale grid infrastructure and the presidential memorandum authorizes the Department of Energy to expedite procedural requirements and immediately deploy federal capital to expand domestic grid manufacturing capacity. In summary, we remain very pleased with our financial performance for the first half of the year and are encouraged by the commercial dynamics that we continue to see across the markets we serve.

With that, I'd like to 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 second quarter of fiscal 2026, we reported total revenue of $297 million compared to $279 million or 6% higher versus the same period in fiscal 2025. New orders booked in the second fiscal quarter of 2026 were $490 million, which was nearly double the orders booked in the same period 1 year ago and included 2 mega orders, each with an order value exceeding $75 million.

The first mega order reflects the largest utility order that the business has ever recorded and is for a large generation facility in the Eastern United States. The second mega order in the quarter for medium voltage electrical distribution equipment is destined for a data center in the Central United States. As a result of the strong commercial activity across our key end markets, the book-to-bill ratio for both the second quarter as well as the first half of fiscal 2026 is 1.7x.

The continued momentum across all end markets, particularly domestically and the resulting orders volume in the second fiscal quarter elevated our backlog to $1.8 billion, a 33% increase or $438 million higher versus the same period 1 year ago and $189 million higher sequentially. The composition of our backlog continues to diversify with our core industrial end markets across petrochemical and oil and gas representing 33% of the total backlog while the electric utility and commercial and other industrial markets represent 30% and 29% of the $1.8 billion of backlog, respectively.

As Brett mentioned, in early April, after the close of our second fiscal quarter, the business secured a mega order in the data center end market with a value in excess of $400 million. This order value is not reflected in either the orders or backlog numbers for the second fiscal quarter of 2026 and will be included in our fiscal third quarter reported numbers.

Turning to revenue. Compared to the second quarter of fiscal 2025, domestic revenues were higher by $4 million or 2%, while international revenues were up by $14 million to $64 million, primarily driven by the offshore projects that are being executed in the Far East and Africa as well as an uptick in project volume across our U.K. operation.

From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the second quarter of fiscal 2025, while the electric utility and the oil and gas markets increased 14% and 11%, respectively. Offsetting these increases, the petrochemical market declined by 37% versus the same period 1 year ago on the softness across this end market over the past several quarters, while the light rail traction power market was lower by 10% on relatively light volume as a percentage of the total business revenue.

Gross profit increased by $5 million to $88 million in the second fiscal quarter of 2026 versus the same period 1 year ago. Gross profit as a percentage of revenue was slightly lower by 30 basis points to 29.6% of revenue versus the same period a year ago and was 120 basis points higher sequentially. Margin rates exiting backlog continued to benefit from strong execution and volume leverage across all of the Powell divisions with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the second fiscal quarter of 2026.

Selling, general and administrative expenses were $26 million in the current period, an increase of $4 million compared to the same period a year ago, primarily driven by higher compensation expenses across the business. SG&A as a percentage of revenue increased by 90 basis points year-over-year to 8.7% in the current fiscal quarter, but declined sequentially by 130 basis points, reflecting a higher revenue base in the second quarter of fiscal 2026.

In the second quarter of fiscal 2026, we reported net income of $45.9 million, generating $1.25 per diluted share compared to net income of $46.3 million or $1.27 per diluted share in the second quarter of fiscal 2025. On April 2, 2026, the company effected a 3-for-1 forward split of its common stock and proportionately increased the number of shares of authorized common stock from 30 million to 90 million shares. Each shareholder received 2 additional shares for every 1 share held on the March 20, 2026, record date. The shares of common stock retain a par value of $0.01 per share. Trading began on a split-adjusted basis at market open on April 6, 2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split.

During the second quarter of fiscal 2026, we generated $51 million of operating cash flow, principally driven by higher earnings generated in the second fiscal quarter. Investments in property, plant and equipment in the fiscal second quarter totaled $1.8 million, reflecting modest capital spending on equipment maintenance and production assets as well as capital expenditures related to the Jacintoport expansion project. The majority of the $12 million to $13 million planned investment to upgrade the Jacintoport fabrication yard is expected to be incurred during the second half of fiscal 2026.

At March 31, 2026, we had cash and short-term investments of $545 million compared to $476 million at the September 30, 2025, and $501 million at December 31, 2025. The company does not hold any debt. Looking forward, as we move into the second half of fiscal 2026, we remain encouraged by sustained commercial activity across our core end markets. Coupled with our continued focus on execution, our ability to leverage volume across our global manufacturing footprint and the size and quality of our backlog, Powell is well positioned to deliver strong cash flows and earnings performance for the remainder of fiscal 2026.

At this point, we'll be happy to answer your questions.

[Operator Instructions]. We have the first question from the line of Tomo Sano from JPMorgan.

Congrats on the quarter. Given the strong $490 million in orders booked in Q2 and there was addition of the $400 million-plus data center orders, how should we think about your order outlook for Q3 and beyond?

Also in light of this growth and how do you plan to manage the associated increases in SG&A and R&D expenses, please?

Tomo, it's Brett. I'll take the first part of that and have Mike jump in on the SG&A side. The outlook is strong. Activity entering Q3 here, there's no let up just as the prepared comments, we started at the beginning of the year, Q1 going into Q2. We feel good about all 3 of our core drivers in the commercial and other industrial, which is really blossoming over the last 2 years. Oil and gas, which we're built for, a very solid outlook. I love the utility space, and so we are hunting hard in that space with this -- it's always in the distribution side, but now with the uptick in generation, that's business that we won as well.

The capacity adds that we're doing, the incremental so far, the larger one that's under evaluation. The data center order in the prepared comments was a team effort. It has roughly a 2-year burn. It will run through the end of fiscal '28. As we typically share on the calls, we're very thoughtful about our schedules, and we feel good about how it lays in across all of our facilities and meeting the commitments we made on that job. We feel pretty good as we sit here.

On the cost side, we are making some investments in the business. We've largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. On the heels of the acquisition of Remsdaq, we've added resources in the states to start expanding that business, along with some of the synergistic adds we found in the data center market in the short term, but we're still progressing our medium- and long-term plans that align with the reason we bought the business to begin with, which was to expand in the utility market.

Tomo, this is Mike. With respect to SG&A costs, they continue to trend in the upper single digits as a percentage of revenues as we invest in some of these new programs that Brett alluded to. The increase on a year-over-year basis really is driven by higher base and to a lesser extent, variable incentive compensation expenses in the first half in addition to the Remsdaq acquisition. Remember, for the first half of last year, we didn't have Remsdaq in the numbers. This year, we do.

As we focus on growing the business organically and standing up some of these new capacity adds to address the market demand, in addition to that, investing in new initiatives such as the government initiative that Brett talked about in his prepared comments, these are both investments that we're making in SG&A from a people and infrastructure perspective that we feel will generate a positive return as we look forward.

You asked about R&D as well. R&D is trending higher. We view that as a favorable attribute. We finished the quarter about 1.4% of revenues. You can expect this to probably hold in that range between 1% and 1.5% as the team ramps up the organic initiatives to develop and commercialize new products.

Just one follow-up, if I may. Your strong core engineering capabilities and along with the execution strength such as the ETO and key systems, we think have clearly earned the customer trust. How do you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge?

It is become much more competitive in the last couple of years, a lot of new entrants, some new private equity money coming in and trying to build up some new models, slightly different than what we do, but everybody is playing in the same general area. We take pride in the fact that we have a long tenured group, a very family approach in the way we compete. In the prepared comments, we are adding a second center here in Houston to attract additional talent to the team. We think that will prove fruitful here in the next couple of quarters. We're also reengaging some of our offshore centers, expanding their capability, doing some training and investing there to ensure that we have options that are offshore as well.

Then sort of buried within the whole model, Tomo, is in the data center and discrete commercial markets, we talked in the last couple of calls about what will the engineering load of this mean to Powell, this cycle that is going to be a lot more product-centric. We're still early innings, but we're starting to see that with -- around the company.

Mike and I just finished up our spring operational tours where we go around all the plants. I can share that, again, very early innings, but it looks to be that we are seeing some nice engineering efficiency on these large jobs in the data center market, which will reduce the burden and allow us to make some adjustments in how we allocate our resources going forward on these different segments. That's an encouraging sign that we suspected and are starting to see some early returns to that thesis.

We have the next question from the line of Chip Moore from ROTH Capital.

Maybe a follow-up on that $400 million-plus order you got in April, fantastic. I guess, is that all outside? Or is this some inside the 4 walls as well? Then you mentioned first phase, you talk about potential for additional phases. Maybe start there.

Chip, it's Brett. Yes, fantastic opportunity. The other comment I'd share it's an opportunity like as you've got to know our model, when you get in earlier and given our strong engineering capability and our ability to work with our clients and really affect a great solution regardless of the market, that's exactly what this was. We were brought in early on a behind the meter. It's not a simple job where they're generating on site. There's some complexity around that. Again, that fits us very well.

It is all outside the data center, the initial award. It's sizable. It's a couple of gigawatts initial phase, and then there are multiple plan phases that will -- we're anxious to see if that progresses over time. Certainly hopeful that it will. It is in the NeoCloud space. I'd share that as well. I think we'll get a shot at the internal side of the data center on this one. No guarantee sitting here today, but we're certainly going to do everything we can to put our best foot forward as this evolves now that we're on the early phases of this. We're certainly following that commercially and see if we can get that over the line.

Brett, maybe 2 more on that one. Just margin implications, given it's such a large order and then the time line being pretty quick. Just how are you thinking about any execution risks there and how are you going to manage that?

Yes. I think the margin potential fits with the comments made a little bit today in earlier calls. I definitely believe there's opportunity in here as we unlock our product-centric models as they develop across the company. There's a lot of -- once you do the initial design, it's a multiproduct it's actually quite wide reaching to the different products that we offer at Powell, a mix of voltages, quite a bit of 15 kV, a lot of 38, both primary switchgear as well as secondary switches that we produce here along with the cable bus product out Chicago. It actually touches just about every division in the company in the North American footprint. That's on the prepared comments, the comment we put together.

I think for each one of the divisions will unlock some potential as we ramp up the volumes. Then on a time frame, it is. It's not like it's $400 million over the next 5 years. It's a 2-, 2.5-year build-out, because we were able to use this incredible footprint that we have in the company, it was really a team effort. We came together and kind of broke the order apart. We've done that in the past on other jobs. I go all the way back to Hurricane Harvey, where we had a -- we talked on the call back then about a job that came in and the client needed it really quick. That's a super exciting competitive advantage that Powell has, I believe, unlike others, where our footprint is so similar from factory to factory with metal fab and our processes that we can lever that in times of need or market demand like we're seeing now. That is absolutely what we've done here and super excited to have been -- have earned the award and anxious to really make it a success. As you noted, see the additional phases in the future years.

If I could sneak one last one in, just around capacity. You did a good job sort of outlining where you're going and the potential to grow capacity. Just given strength across all your markets really and data center, in particular, if you were to see similarly sized opportunities, what's your ability to meet those as they come along?

Yes, we're definitely reacting. That's the comments in the prepared remarks. Along any job when we evaluate schedule, we always -- we look at everything all the way down to supply chain. Again, I also noted that in the prepared remarks, so we are clearly adding short-term capacity here in Houston, especially around that, which we can control the metal fab side. We noted in the comments also about while the organic build continues, we are clearly looking at a pivot in the near term to maybe add a larger lease space. It's a little bit more efficient. There's a lot of builds in different locales, including here in Houston and some other commercial centers in North America, where things are already there and with minimal modification, we can get them more productive quicker.

I think that if and when the next one comes, we could follow the same model and the constraints would be people and supply chain, which neither of those is easily to unlock, but we would attack it with the same vigor that we attack this one. Mike and I are very involved in the supply chain side and the whole team. The last couple of quarters have gone out to really understand it much better, to ensure that as we make our schedules on our proposals and we make our firm commitments that we're back on supply chain, so we don't have a miss there.

Then as long as we can unlock that, it will come back to just attracting talent and getting them trained into the Powell model to execute. That would be the #1 concern moving forward.

We have the next question from the line of Manish Somaiya from Cantor.

My first question is on pricing power. Brett and Mike, you talked quite a bit about strong markets, but in your commentary, you mentioned pricing is stable, broadly keeping in line with inflation. Why aren't we getting more pricing if the markets are strong as they are?

We are getting some price, Manish, for sure. In certain product areas that have become constrained in the demand supply curve, we are absolutely moving up price incrementally in those markets across all 3 verticals, when you look at how we're competing in the oil and gas industrial market, utility market, we're very sensitive to where you can push price and where you need to sort of hold your ground. We are pushing price.

I think we'll start between that and the efficiency gain as we start to build our plans for '27 and beyond, we'll get a good feel in Q4. I don't think it will come out so much in the numbers in Q4, just kind of thinking forward, but internally, we'll start to see it. I kind of go back to the earlier question on our reviews, where I was giving the answer going around and looking at the efficiency that we're building into there.

I think that will come out as price. We'll be able to better report on it as we hit the end of this fiscal and then prepare into '27. Kind of noted that a little bit over the last couple of calls, and I think we'll be able to quantify it a little bit better as we get through the next quarter or 2 in the company and give you a better report as to what that is.

My other question pertains to you guys taking on larger, more complex projects. How should we think about the cadence for margins going forward? Then more specifically on the $400 million-plus award for the data centers, was that a solo award? How does that change your perspective on the TAM for Powell when it comes to data center market? What percentage of market share is reasonable that you can achieve in that?

Well, those questions, in my mind, go together because on this particular job, one of the things we talk about is we really do well on the complex power -- sorry problem. This one is -- it has a degree of complexity that we haven't seen in some of the other data center jobs that we've been building our market segment on. When we got involved early on this one, there is a really unique complexity on the behind-the-meter design that's akin to a power island that we might see on an industrial facility or even an offshore platform where you're generating and distributing load locally. That these behind-the-meter ones clearly have that.

They have a higher degree of complexity around the gear. They have a higher degree of complexity around the automation, and it fits us very well. I'd say the TAM on a behind-the-meter is going up for Powell, say, beyond a straight utility connect. We're interested in both. It's not that we won't pursue both models, but the behind-the-meter opportunity for Powell clearly going up with this complexity equation. Depending on how they're generating, whether it's a mix of resources or renewable, there's a whole bunch of ideas out there that we're seeing come across the commercial front. I'd say our excitement for that potential is growing.

Brett, just on that, the $400 million award that you got post the quarter end, was that a solar contract? Or was that split?

No, one purchase order.

We have the next from the line of Alex Rygiel from Texas Capital.

Just a maintenance item here first. Backlog as a percentage of total by market, can you provide that once again?

Yes, sure, Alex. This is Mike. As we deconstruct the backlog segmentation for Q2, roughly 5% was petrochem, 29% was oil and gas, 30% is utility, 6% is traction and 29% is commercial and other industrial, which includes the data center, which is in the low 20s of that 29% and then the rest is other.

Then as you look at the data center market more broadly, how many customers are you working for right now? How many customers are you talking to right now? You can obviously generalize there, but trying to get a sense of how broad your sales effort is into that segment.

Alex, it's Brett. It's becoming every quarter, more and more broad. If you go back a couple of years ago when we were 7% of the backlog and 15%, 22% and now jumping the next couple of quarters, it started through different channels and what I'll call indirect channels through distribution or through partners, where we were getting a piece of the scope, not really getting a look at the whole opportunity, whether that's on the outside the data center or yet inside the data center. It started in that manner.

Over the last couple of years, we've been adding resources, front-end has cost folks from the industry to help us better understand how to attack that market more thoughtfully, and that is clearly having a return to the company. Today, fast forward, we still have that indirect OEM and partner model, which has grown, but clearly driving our own direct destiny where we're getting in earlier and having direct conversations with the contractor or even the ultimate end client or a combination of the 2. That is starting to grow. We like both channels to market, and we'll continue to thoughtfully invest where it makes sense in all those channels to support the broader build-out of the market.

We have the next question from the line of John Franzreb from Sidoti & Company.

I'm actually curious about how you're handling the spike in metal prices in 2026? How does that impact the gross margin profile on a go-forward basis?

John, this is Mike. I'll take that question. We are very proactive with our metals, specifically copper. As you know, we use a lot of copper, and we do have a hedging program for copper to -- it essentially acts as an insurance policy to protect the margins that we have in backlog. That's the biggest piece. We stay on top of steel, aluminum as well, but we are pretty proactive with the supply chain for those core commodities.

I think in the prepared comments, you said something about small to midsized projects were a net benefit in the quarter. Can you just maybe drill down a little bit of what's going on there?

John, it's Brett. Yes, we had 2 sizable jobs that we noted in the comment, one from the data center -- the other data center job that we logged in the quarter pre-close of March. Then the utility job, which I don't want to lose sight of. I love the utility business. When you look at the balance, and you know our model well, when we get that nice mix of having those anchor jobs in the backlog, but then being able to put different size jobs, the small $0 to $10 million job and then the next step up sort of the $10 million to $50 million is the way I think about it.

Having those given the cycle of a project build really is advantageous for the Powell model and that we bring the project in, we schedule it, and we know that they're going to be stopping hold points throughout its cycle, given the different size of the job, it gives us leverage to move the crews in and around it. When we lose that mix, it creates another pressure in the business to manage through the P&L of each of our factory locations, but that really healthy bulk of small and mediums that just came in Q2 and again, is continuing in commercial activity as we look forward is very healthy, very encouraging for how we think about planning the business. We wanted to call that out.

Is it running above that $50 million threshold, Brett, or no?

No. I mean we see the normal cadence of potential out there going forward in terms of those jobs that are larger than 50. What we've kind of -- I think kind of just started picking up year, 1.5 years ago, we said we shared that there'd be -- there's still a healthy mix across all of our core markets, just that the timing would be suspect. No change to those comments. There's still a healthy mix of those out there. There's the timing of them.

We have the next question from the line of John Braatz from Kansas City Capital.

Brett, just want to touch base. Obviously, the outlook is very strong, and you're considering a potential expansion of $70 million to $100 million. I guess, given the outlook and what you're seeing, what do you need to see more before you make that -- for you to make that commitment? The business obviously seems very good. It seems like you could go ahead with it. What might -- what else might you need to make that commitment?

John, not too much more. Mike and I have got a Board in a couple of weeks. We've been talking to the Board the last couple of quarters about it. As I noted, we had -- with the active quarter and with the commercial activity maintaining, clearly, we had to react on some of the short-term needs, unlock some needs, maybe not optimal, if I were completely honest, but absolutely going to get a good return and needed.

I think we're just about there and being able to support not only the market activity, but even don't lose sight of our intentionality on our strategic builds, which is why we called out some of the stuff on the service side. That team is maturing, just to kind of call it out. They're doing a great job building some substrategies within that growth strategy of ours, and they're getting more confident with their substrategies, and that adds into the option A, B and C for the next big chunky space.

If we think about it in, let's say, in 3 or 4 months, you would go ahead and make that decision. What kind of time line would it be to get something like this constructed and up and going? What might be the revenue capacity or potential of such a new manufacturing space?

A greenfield is probably going to run us conservatively 2 years. The actual build time is less, but the variable is always the permit. That's one of the reasons we -- given the rapid growth that we may bridge that with a similar sized lease facility and we have to outlay some capital for the cranes and things we would need around the different various things we might do in that facility over a 3- to 5-year lease term, while the other facility is being built. that's our thinking today.

If we go to lease route, still some permitting because no facility is purpose-built. You get the shell and you got -- you still got to do some things to it. We see revenues quicker. We've moved inventory into that space, get the cranes and you'd probably be looking at productive capacity within 6 months.

Total revenue of such a facility, it's going to scale. Again, it depends on the mix of service and projects and products that we ultimately put into that, but you can run $100 million to $250 million.

Have you had to turn down any orders at this point?

I wouldn't say we're turning anything down. Are we able to meet the schedules of everything coming in the door? The answer to that is no. We have a really broad funnel. We've expanded our process around that funnel with the growing commercial and industrial segment and the growing resources there, the growing capacity.

The team play, as we noted today, has become much more prevalent day in and week out here at the company, which has been fantastic to see the company come together and the team really work across their functional areas, across the geographies and across the facilities. So we're unlocking every little bit of opportunity, which has been fantastic to see. So no, we're not able to respond positively to all the opportunities, but we're -- where we always strive to, if we can't hit exactly what they ask when they come in the door is engage them on sequencing and constructability of their site and other things that we can do to work together. Those conversations, given our model, also pretty effective at trying to reach a good solution for both the client and for Powell.

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, Myron. I would close with Mike and I just thanking everyone for joining us this morning. We're very encouraged by the commercial strength we're seeing across each of our core end markets and continue to expect another strong year for Powell. I'd like to thank the entire Powell team for their hard work and commitment to both Powell and of course, to our customers. Mike and I look forward to updating you all next quarter.

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

Good day, and welcome to the Powell Industries Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This event is being recorded. I would now like to turn the conference over to Ryan Coleman of Investor Relations. 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 2026 1st 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 11. 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 4, 2026, 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.

Thank you, Ryan. Good morning. Thank you for joining us today to review Powell's fiscal 2026 1st 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.

Our fiscal year is off to a strong start. As our first quarter results continue to demonstrate Powell's unique and advantaged position against a backdrop of what are secular and increasingly durable growth trends, the growing and broad investment in power generation and grid modernization to support data center and AI capacity growth, domestic manufacturing, electrification and the nationally important export of energy resources like LNG, are validating our now nearly decade-long strategic effort to transform Powell into a more diversified manufacturer of electrical distribution products and systems.

During the first quarter, we saw revenue grow 4% compared to the prior year. And as a reminder, our first fiscal quarter typically exhibits some level of seasonal disruptions associated with fewer working days. While ongoing high levels of project execution drove improved profitability compared to the prior year. Gross profit expanded 20% to drive a gross margin of 28.4%, an improvement of 380 basis points year-over-year.

We recorded $439 million of new orders, the highest quarterly total in over 2 years, as activity was widespread across oil and gas, specifically LNG, data centers and the electric utilities markets. Within our total bookings number, we were awarded a contract for a large LNG project that exceeds $100 million to support gas liquefaction and export along the U.S. Gulf Coast.

As the permitting process for LNG restarted a year ago, activity in support of new greenfield and brownfield trains resumed and Powell has and continues to support this strategic market. We anticipate activity within the LNG market to continue in 2026 relative to the more modest activity levels throughout 2024 and most of 2025.

Commercial dynamics within our commercial and other industrial markets have accelerated in recent quarters as we continue to see increased demand within the data center market. During the first quarter, our commercial and other industrial market accounted for nearly 1/2 of the order total and included our first mega project order for a single data center, which totaled roughly $75 million.

Our commercial and other industrial market now comprises 22% of our backlog as of quarter end, with data centers accounting for roughly 15% of our total backlog, both of which are record levels for Powell. Over the past few quarters, we have continued to experience increasing levels of interest among a growing list of data center customers.

The increasing power demand driving greater compute power and the desire to expedite construction time lines creates a value proposition that is well aligned to an increasing portfolio of Powell's electrical distribution products and automation solutions, including our first orders in the United States for our newest team members at Remsdaq Limited in the U.K.

In response to the growing market demand, we continue to take measures to expand productive capacity, including adding additional leased facilities to support the expansion of production lines, increased inventory needs, broader collaboration with our supply base to ramp supply and improve cycle times as well as rebalancing and reallocating the manufacture of select products across our facilities in North America to further optimize capacity. Meanwhile, order trends in our Electric Utilities segment remained very encouraging as we experienced another solid quarter of award activity from this end market.

Overall, the oil and gas and petrochemical business remains healthy. We are experiencing some degree of divergence across markets and geographies that we compete with some performing very well and others exhibiting softer activity levels in areas such as refineries and polyethylene and polypropylene facilities.

We finished the quarter with a backlog of $1.6 billion which was sequential growth of 14% compared to the September quarter and is the highest in Powell's history. The growth in our backlog over the past year has been primarily driven by booking trends in the electric utility and commercial and other industrial markets as these 2 markets now account for the majority of our backlog for the first time ever.

Overall, our backlog is well balanced across the markets we serve, and we continue to benefit from a healthy mix of large projects as well as small and medium-sized core projects that help maximize productivity across our manufacturing plants.

We also benefit from project visibility that now extends into our fiscal 2028. The expansion of our Jacintoport facility is progressing on schedule and remains on track to be completed during the second half of our fiscal 2026. This incremental capacity will be critical to ensuring our ability to support all of our end markets, but specifically, our oil and gas customers as we anticipate the wave of LNG project development work that is projected to come to market over the next 3 to 5 years, and this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered to order power distribution solutions for critical applications.

We continue to actively review and evaluate our total manufacturing capacity to ensure the delivery and execution of our project backlog. This includes the potential for future investments in plant and equipment, along with actions noted earlier in my comments, where we are now adding lease properties to support near and midterm growth in our medium voltage distribution products.

As we look ahead through the remainder of 2026, the commercial environment for each of our major end markets remains positive. We continue to have robust activity in support of the North American gas market. The fundamentals of the U.S. natural gas market continue to support investments in LNG and the funnel of projects that we are tracking compares favorably to past cycles in terms of the total number of projects moving forward.

The outlook for our electric utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable and we expect another strong year of activity in 2026.

Lastly, we are increasingly encouraged by order trends and demand levels within our commercial and other industrial markets. The acceleration of order activity driven by data centers leaves us confident in our ability to continue to grow our presence in this dynamic market. Overall, we are very pleased with our first quarter performance and our outlook for fiscal 2026. Demand trends remain robust, and we are well positioned to execute our backlog and grow within our targeted markets. With that, I'd like to 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 first quarter of fiscal 2026, we reported net revenue of $251 million compared to $241 million or 4% higher versus the same period in fiscal 2025. New orders booked in the first fiscal quarter of 2026 were $439 million, which was 63% higher than the same period 1 year ago and included 2 mega orders.

The first mega orders for a large domestic liquefied natural gas project valued at greater than $100 million, which is being constructed on the Gulf Coast. In addition to this LNG mega order, the business also secured a number of orders during the quarter, supporting the electrical infrastructure for various data center projects.

Collectively, these data center orders totaled more than $100 million in the first quarter of fiscal 2026. These data center orders booked in our commercial and other industrial sector included a notable mega order for electrical distribution equipment and was valued at approximately $75 million that will be deployed at a single data center.

Notwithstanding these significant wins, the orders cadence across most of our reported market sectors continues to be active, particularly across our domestic end markets. As a result of this commercial activity, the book-to-bill ratio in the period was 1.7x. Reported backlog at the end of the first quarter of fiscal 2026 was $1.6 billion, $219 million higher than 1 year ago and $191 million higher sequentially and continued strength across the oil and gas, utility and commercial and other industrial sectors.

As we exited the first fiscal quarter, backlog across our oil and gas and utility sectors, each represent roughly 30% of the total backlog while the commercial and other industrial sector has grown to 22% of the backlog, increasing substantially on both a sequential and year-over-year basis.

Compared to the first quarter of fiscal 2025, domestic revenues were slightly lower by 1% or $3 million to $195 million while international revenues were up 29% or $13 million to $44 million in the current fiscal quarter. The increase in our international revenues during the quarter was driven in large part through the projects that we're currently executing in the Middle East and Africa, Asia Pacific and Europe regions.

From a market sector perspective, revenues across our utility sector marked the most substantial increase during the quarter, higher by 35% compared to the same period 1 year ago, while revenues from the oil and gas sector increased by 2%, offset to some degree by the petrochemical sector, lower by 31% versus the first quarter of fiscal 2025.

Lower revenue in the petrochemical sector was mainly driven by the completion of a large project booked in fiscal 2023, coupled with softer commercial activity in this market. In addition, the commercial and other industrial sector was 8% lower on project timing, while the light rail traction power sector was 5% higher on a relatively small revenue base.

Gross profit in the current period increased by $12 million to $71 million in the first fiscal quarter versus the same period 1 year ago. Gross profit as a percentage of revenue was higher by 380 basis points versus the same period 1 year ago at 28.4% of revenues primarily driven by strong project execution, generating a higher level of project closeouts versus the prior year. Sequentially, gross profit was lower by 300 basis points on the predicted seasonal softness.

As we noted in our fourth quarter release, we anticipated a challenging sequential comparison considering that our first fiscal quarter is historically the softest quarter across our fiscal year due to the holiday period. Selling, general and administrative expenses were $25.2 million in the current period and were higher by $3.7 million on increased compensation expenses across the business versus the same period a year ago.

SG&A as a percentage of revenue increased 110 basis points to 10% in the current fiscal quarter. In the first quarter of fiscal 2026, we reported net income of $41.4 million, generating $3.40 per diluted share which is a 19% increase compared to a net income of $34.8 million or $2.86 per diluted share in the same period of fiscal 2025.

During the first quarter of fiscal 2026, we generated $43.6 million of operating cash flow on favorable income generation through the period. Investments in property, plant and equipment totaled $2 million in the quarter, with the capital deployed primarily to address capacity and productivity initiatives. At December 31, 2025, we had cash and short-term investments of $501 million compared to $476 million at September 30, 2025, and the company does not hold any debt.

As we look ahead to the remainder of fiscal 2026, we remain encouraged by the commercial tailwinds across all of our end markets. Given the current market conditions, coupled with a stable pricing environment, we are optimistic that we can sustain the quantity and the quality of our backlog throughout fiscal 2026. Combined with our ongoing focus on optimizing margin levels, increasing product throughput and the overall strength of our balance sheet, Powell is well positioned to deliver strong revenue and earnings throughout the rest of fiscal 2026. At this point, we'll be happy to answer your questions.

[Operator Instructions]. Our first question comes from John Franzreb with Sidoti & Company.

Congratulations on another great quarter. I'd like to start with the comments on the gross margin that you can -- that based on what your current backlog looks like that you can sustain the 2025 gross margin profile. I wonder, does that consider potential change orders or short-cycle business? Or is that just based on the backlog configuration?

John, this is Mike. I'll address that question. So we had a very strong quarter with respect to project closeouts as I noted in my prepared comments, 380 basis points overall on reported margin versus prior year. Of that $300 million was attributable to project closeouts, which was favorable to last year and that was really driven by strong execution and risk management and our ability to recover costs via change orders, et cetera, in the project environment.

The remainder of that upside was just playing productivity and operating leverage across the business. As a barometer of level of margin levels over time, I would point to the trailing 12-month performance. If you took a look at the trailing 12 months in the business, our reported margins are running about 30% and of this, there's approximately 175 basis points of project closeout gains, again, which includes change orders and the like changes in estimates. So maintaining a base level margin in the upper 20s while continuing to drive for 150 to 200 basis point upside resulting from favorable closeouts is a reasonable assumption. And that reflects what we see that base assumption is what we see in our backlog.

Got it. Got it. That's very helpful, Mike. And I'm actually kind of curious about the record backlog, it's great to have. It's wonderful to see. But I'm wondering if there's any concerns that customers are just buying to get in line and that the backlog might not be firm in use past given maybe the new customer shift. And just any thoughts about that?

John, it's Brett. It's a good question. We've talked about that in the past, and we -- are we open to cancellations, what would that potentially do? I don't think -- yes, I think the 1.6% is very durable. Some of the new market growth in the commercial and other is, if you look at the timing and our understanding of the project, I feel very good about it.

I think as we look out what's going on in that space, are people talking to us and others about reservations and locking capacity, yes, those conversations are happening. And Mike and I and the management team are discussing what that might look like in the next couple of quarters, the next couple of fiscal years as the demand looks like it continues how to best handle that risk potential. So that -- I think that's a future concern that's on our radar, and we're taking it quarter by quarter, but not currently in the backlog. I feel pretty good with what we've got here today.

Our next question comes from Chip Moore with ROTH MKM.

I wanted to ask drilling on data center, maybe a little bit more. I think you're talking about larger and more numerous opportunities and obviously, that megaproject great to see. Maybe just -- can you expand, Brett, maybe on cadence of deliveries in data center?

And then I believe many of these facilities are being built in phases, just potential for follow-on orders at some of these sites. And capacity questions. You mentioned adding some leased facilities, just how quickly you can ramp and get the switchgear supply going up.

Yes, I could have probably done a whole script on the data centers when you look at us in the broader market out there that's involved in the space because we are admittedly learning a lot as it's growing quickly in Powell.

First of all, on the cadence of the activity that's ongoing. There is an interesting dynamic. It is project work, but still, a lot of our backlog that we just shared in the prepared comments is still outside the data center, even this large mega project. It is a large amount of work for a project to handle a lot of the outside of the work. And it's a lot of design one, build many.

So it is supporting more of a product strategy. It's a project as we look at it as Powell. And so -- but it's going to create a lot of -- a lot more flow down production lines. We think there is a lot of opportunity there that we're working through over the -- and we will be working through in the next couple of quarters about efficiency, productivity and delivery.

So we spent a lot of time last quarter, quarter before, working on supply chain, doing the blocking and tackling on the production line. The prepared comment, we added a 50,000 lease square foot lease facility, which we're just taking ownership now. During the quarter to support this product line flow to store the inventory that needs to ramp to match.

But it's going to be a lot of that repetitive product build down the line, and we anticipate more of that in the next quarter or 2. We're evaluating -- we're under evaluation right now, some additional facilities. We're challenging whether or not we should go larger and along with even investment in our model. We like to own our PPE. But right now, the lease makes sense. As we better understand and become more confident, we'll build out more permanent investments, I think, to match, not just this, but of course, the things we've been doing organically to drive growth in all of our 3 verticals.

Very helpful. I appreciate the color there, Brett. And if I could ask one more. Supply-demand environment, I guess, more broadly to the point on margins, a lot of announcements around capacity expansion from a number of equipment suppliers floating out there? Just maybe it sounds like things are quite stable right now, but just how you think about the future several years out, what might take place?

Every quarter, I'm getting more confident. The -- notwithstanding John Franzreb's question about the concern on this massive demand environment. I mean the number of customers were having more thoughtful strategic discussions with is increasing, and they're engaging Powell in a way that fits us well. And so I talked early on, maybe a year ago about finding alignment with clients that meet well with what we do culturally and how we do it, we'll learn from that and we'll grow.

So we're not going to stay static as to who we were. We want to build a part of the company that is quicker on the cycle, can meet the need. There is a lot of demand. We understand the urgency and the return on their capital. But at the same time, we want to make sure we're hitting the dates for all 3 verticals that we're serving.

So the number of customers is increasing. It is going out further in time and the programmatic approach about your comment about phasing, yes, we see the initial on the initial design and the potential train -- I'll call it, train expansion, but the size of the data center potential that could be added on to it is definitely part of the conversation. So that fits our model, right?

If we execute and deliver for our client. We absolutely want these relationships to be sticky, just like there are other verticals, and we're very open with them in that approach. And so we use that as a an early-on engagement sort of screening discussion of, hey, we'd like to help all of you, but we want to align with those that really match us well.

Next question comes from Manish Somaiya with Cantor.

Michael and Brett, it's Manish Somaiya. Just a couple of questions. One is on pricing. Perhaps if you can just give us some comment on what you're seeing as far as pricing in your end markets, the intensity of competition pertaining to that? And then related, how should we think about raw material prices and how they get passed along and what you absorbed? Perhaps if you can just give us a sense as to how you protect yourself in this ad of rising commodity prices.

Manish, thank you for joining today. I'll take the first part of that. Mike can add some color and jump into the input cost side. On the pricing environment, we've been asked that last couple of quarters. No real change. I think everything is holding pretty steady in all our verticals in terms of the competitive status of the market, if you will.

The one dynamic that I would point to that we are learning, and I touched on this with Chip in the last call -- last question a little bit, is that on these data center jobs, they are with how we price in the market. I would say, that said, the way we're going to build these lines, I anticipate we have some potential upside because in the long cycle project -- when we build a project and they're large full of products and integrated scope in their year, 2 years, 3 years, these have a much quicker cycle on average compared to some of those on their demand curve to meet the need.

And so when we get up to speed and build these products over and over and over, I think that the efficiency factor, something that we don't largely do as Powell today, and we're building out that product side of the company. I think there's -- I think we'll see some potential upside in there. I don't know how much yet. But I do think that we see the potential for it. So that in a sense would be price. If you back calculate it in the next couple of quarters, I think that will become more apparent to our to our understanding.

And following on that, Manish, this is Mike. Regarding the input costs, clearly, we watch this very closely. We kind of bifurcate it into 2 buckets. The raw materials, as you noted, copper, steel, very volatile. The metals market is very, very volatile today. We do hedge our copper to some extent and any drastic increases that we see, we roll those into our pricing models internally.

The second bucket, I would note, are we buy a lot of engineered components, things that we don't make, HVAC, fire systems, things of that nature. And as you know, our projects could range from 1 year to 3 years. So we lock those not those commodities, those engineered components, in when we signed the contract. So we're locked into the engineered components and we watch the commodities very closely and roll those into the pricing model. So that's how we manage those businesses -- those elements of the business to mitigate the risk.

And then just as a follow-up, how should we think about the lead times on specific components like switchgear, for example, obviously, you have a significant backlog at this moment. What are sort of the potential constraints on the component side that could impact revenues?

That's a discussion we have every day and along with per couple of comments on the capacity additions that we're working through. I think we're in a good spot. If you look at the mix of products that we make and if you just kind of go back to data centers, Manish, the power levels have increased coming off utility or if they're doing GTG, self-generation on site or any kind of multifuel, there's a lot going into the 38 kV line, and that is ramping quickly. That's a product that we're rarely adept at. It actually fits Powell really well.

But when you look at the 5 and 15 different product levels, they're not as robust. We actually have capacity. And so some designs of data centers out there, if you look at how they're doing their data halls, not all of them are just massive 1 gigawatt or 3x 300 gigawatts. There's new designs coming out that are 90 or 100 or 150-megawatt data halls that we still have really good capacity running 35 to 40 weeks on gear, which is very competitive in the market for 15 kb.

So when you get into the mix of how they're doing their power design, we are driving future capacity for those higher levels that are really under demand, but then there are other designs that we still have opportunity to fill out that will benefit the back half of this year and into the early part of '27. So those are the really thoughtful conversations we're having with those clients that engage us that way. We can fate, we can build, we can invest meet their needs and then we can phase our deliveries to really make a win for both parties.

Our next question comes from John Braatz with Kansas City Capital.

Brett, you've spoken a lot about doing things to increase capacity and product flow and so on and so forth. And I guess, 2 questions. Number one, how much might you have to ramp up your CapEx spending to achieve that? And then secondly, when you think about your capacity now and what you want to bring on board in the future, if your top line, if you could do, let's say, if your top line growth was x percent, what might that new capacity be able to drive revenue growth in the future? Are we talking about mid-teens then? Or what kind of new growth -- new top line expectations might there be with this new capacity?

Well, that's a really good question, John. First, on the CapEx side, yes, we've been evaluating for the better part of the year a new facility owned by Powell. A lot of that started off in support of our organic investment in R&D and some of the products we aspire to bring to market to pursue more share of wallet and utility spend. I really like the utility vertical for Powell long term, and we've done really well in there. And I really think the team is -- what we've done is really driving value for our client in the utility space and vice versa. And so we don't want to lose focus on that.

So add to that what's going on in the market in this newer dynamic, we're considering right now something on the order of another $100 million type facility. We've not pulled the trigger on that. Really active discussions with the Board. Meanwhile, we saw an opportunity on the lease side. When you look at both in terms of how they could potentially drive revenue, yes, I think double digits is possible. We got to get a few more products organically out like I noted earlier, if we -- and maybe a little bit more -- I'd hedge a little to say when, given how many data center companies are engaging us get inside the data center, -- it will be a pretty chunky add.

The low-voltage content, even on the AC designs that are going on now and the momentum that's built because there's a lot of talk on the future DC designs, which we're also involved with but it will be a step change. And some of that with that -- with the investment we did last year at the breaker plant here in Houston, the 50,000 square foot, we're already prepped for some of that. Well, we could quickly need some additional facilities beyond that just to hold the inventory. So we can see out there some potential nice steps to add to the growth of the company.

Okay. And Brett, on the LNG market, obviously, it's a little bit different today than it was 3 years ago when sort of the initial construction rollout began. Is the competitive environment a little bit different today than 4 or 5 years ago?

It's different, but it's no less intense. And my color comment on that would be, if you go back 4 or 5 years ago and you look at the players that were in the market from the international people that we compete with, along with some of the local building makers and integrated partners at the -- our competition would use, there was a set of competitors that was x. If you look at today, 5 years on and you look at like in our investor deck, we present who we think about every day when we get up to compete on the electrical side.

What's changed is their strategy, I think. Our core strategy around industrial oil and gas utility, which we've been working at for the better part of a dozen years. And now this latest piece, we're not going to forget who we are in these first 2 verticals. And we really enjoy that complex industrial hard to do job.

And so there's still competition, it's still intense, but there are some new players because of changes on the other side that happened from 5 years ago, maybe the focus is different, I don't know. You have to listen to their calls. But for us, we're still focused on that. And we really like that business, and we're very engaged on it. And the investment we've made in offshore is built for that, and we're out trying to earn all that business that's potentially coming through FID in the next couple of quarters.

Okay. So Brett, if you -- when you look at the margin that you achieved a couple of years ago on the new projects, new LNG projects, do you think you can see similar margins going forward?

I think so. I mean, there's -- all the segments, that's the one that is given the size of the capital investment in these facilities. There's still a lot of focus on the return of the facilities. And so it's good, but I -- you got to be careful to be fair and what you're really looking to do.

And so if there's something that's unique or there's time elements that we can provide, that's unique to our model, for instance, using our offshore facility for large single piece that will help reduce cost at site. We just asked a rare value in return for that for the site, but not to be silly about it.

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

Brett, I'm just curious about the opportunity pipeline. It seems phenomenal. I wanted to kind of look at it and say, listen, we're going to have an exit book-to-bill ratio of above 1 point for the next coming 2 years. Is that something reasonable to expect?

I think it's reasonable, John. I mean there's no guarantee of future results. You know the phrase -- the amount of conversations we're having across all 3 verticals. I think it's a reasonable expectation, which is why we had chats with the Board, and we had the change in some of the metrics that we're driving the company for. And so the volume potential is definitely there. And as a team, we've got to solve that. And I feel good that we've got the right team and the right environment to make that happen for all the stakeholders.

Got it. And I was wondering, has the Board considered a stock spread at this level? I mean, compared to historic levels, it's fairly impressive.

Yes. We have -- some of the color on that really is more, if you think about our team and the growth of the employees as just critical to the success of all the stakeholders' interests using equity within our structure has become very much more of the forefront discussion with the Board and Mike and I and our CHRO. And so yes, the stock split from a math standpoint about making sure it's a tool that we use for our team to support their engagement in the process here is definitely very active.

Got it. And I guess kind of just one last one. How should we think about the cash on the balance sheet, over $500 million when does that number start to get drawn down a little bit as you use more working capital as these larger projects come on board?

Well, let me just make a couple of comments there and let Mike jump in. As I noted, already this morning, I definitely think we're thinking about allocating some of that to some new facilities. I can't really pin down the timing yet. We've got a board here, 2 weeks. It will be in the discussion -- and then we're not slowing down on the M&A side, even though we did the one with Remsdaq in last summer. There are still some ideas out there that when we can get out in the market and do the strategic work. There's still some really nice potential out there. So there's that. And then I think the capital needs, Mike.

Yes. As a follow-up on that, John. From a working capital perspective, roughly 40% to 50% of that balance will be deployed at some point in the future to that $1.6 billion backlog number. But that said, when you look at what's the free cash available for the capital deployment in some way, shape or form, it's probably $200 million to $225 million mentioned that we're thinking about capacity requirements across the business. So I'm sure some of it will get deployed in that fashion.

Our next question comes from Chip Moore with ROTH MKM.

Just one more for me on Remsdaq, I think you called out getting some traction here in the U.S. So just an update there now that you've had them for not too long, but a little longer -- and then service more opportunity, I guess, more specifically around data center, in particular, just talk to that.

Well, thank you for the question. Yes, Remsdaq, great strategic add, great set of folks in the U.K. We -- when you have these dynamic times in the market, Chip, you -- every market has an approved approach, the way they bring in technology. Remsdaq was so experienced in their market in the utility space. That was one of the things that attracted us to them initially plus their technology road map.

The data center market, the commercial and other industrial has definitely opened the door to allow us to get that technology in quicker than we anticipated into the U.S. market. So we've had some technical meetings with some of the customers that have come to us on applying this technology to the powertrain that speeds in the data center for some protective and control logic and it's opened the door. And it's created new opportunities for us even on the high-voltage side.

We just took our first order for a high-voltage control protection substation the utility connect, if you will, the high voltage into the medium voltage, which would be a new space for Powell. And again, that was underscored by our ability with having Remsdaq and their technology as an enabler. So super exciting time. I have high expectation for the growth of this business. It is accretive to margin significantly, and Powell has a long history of success here.

Service. yes. Thank you, Mike. On the service piece, yes, there is clearly opportunity on the data center front, the commercial and industrial. We haven't taken anything significant yet. But over the last quarter I've been involved myself in some of the discussions where we do see an opportunity for service to come in. On the build side, quite frankly, initially, we've not entered on the OpEx side after. I think that will come. Still a new market for us. And as these assets get installed, I think we'll see some installation and long-term support work.

But we right now are developing some ideas with clients on how our team can help the constructability, the timing, given our know-how on the skid and the integration of the mechanical side of these solutions with how they're trying to speed up the time line. And so our service team is engaged and we're actually out providing some quotes for what we think we can do. We haven't closed anything yet, but it would be -- we do see it as a big opportunity as we go forward.

Our next question comes from Manish Somaiya with Cantor.

Mike, I'm not sure if you mentioned the next 12 months backlog. Would you mind giving that to us?

Manish, you'll see that in the Q that we submit later today. Of the $1.6 billion backlog, roughly 60% of that is convertible over the next 12 months , I think in the Q, you'll see $933 million. And on top of that, we refresh what the book and bill rates been on average over the last 12 months. And that's running $65 million to $70 million cadence every quarter. So those are 2 of the key metrics as you look forward.

Okay. Wonderful. And then, Brett, you talked about strong demand across the board, strong activity, strong backlog my big question is the shortage of skilled labor in this country. And is that going to be a constraint as far as your growth ambitions are concerned?

Well, it's always a concern, Manish. It has been the entire 15 years I've been at Powell through any cycle. Is it a concern today? Absolutely. The management team discusses it routinely. On the variable side, there's always a time where there's a skill set within the company that has a need.

On the variable side, we're doing fairly well. In fact, I'd say in the last couple of quarters, we've solved some problems. As I sit here today on the fixed side, we do have some needs that are challenging us with this step change in -- especially on the commercial side. The growth in this segment is challenging some growth needs today on engineering.

So that's a problem that we're out working and I feel confident in the next 90 days or so, we'll figure out how to solve that one. But it's not unique or new to us. We -- because we are a long-cycle project company by historical sense, we've been here before, and I'm confident the team will find a way to solve the need. But given the growth of the backlog, yes, we've got some needs right now, and we're going to go out and solve them.

Well, thank you again, and congrats on the quarter.

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

Thank you, Bailey. Our first quarter delivered solid performance with improvements in our top and bottom line. Powell's employees consistently embrace the challenge while keeping our core focus on executing the most complex of industrial electrical distribution projects, our team is responding to meet new and growing market opportunities, which underscore our ability to secure future business and drive new strategies to improve productivity and profitability.

I would like to thank our valued customers and our supplier partners for their continued trust and support Apollo. We're very pleased with our first quarter, and we expect another strong year for Powell. Mike and I look forward to updating you all next quarter.

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

Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions]. Please note, this event is being recorded.

I would now like to turn the conference over to Ryan Coleman, Alpha 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 2025 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 November 26. 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, November 19, 2025 and 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 and 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.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2025 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 marked a solid finish to another record year for Powell. Compared to the fourth quarter of last year, we achieved gross profit dollar growth of 16%. Revenue growth of 8% and the generation of $61 million in operating cash flow. Our teams delivered a record quarterly gross profit of 31.4%, which was 215 basis points better than the prior year and a record quarterly earnings per share of $4.22 per diluted share.

Our fourth quarter performance is a testament to the ongoing high level of project execution across all of our operations combined with a steady progress against our strategic goals. The revenue profile of fiscal 2025 was driven by the strong growth in our nonindustrial markets, including both the electric utility and our commercial and other industrial sectors. These 2 markets accounted for 41% of our revenue in fiscal 2025 and currently comprise 48% of our total backlog. 5 years ago, these 2 market sectors accounted for just under 20% of our backlog as our focused effort to diversify the business and grow in these strategic markets has produced important results for the future Powell.

The light rail traction market also had notable contributions during the year. with revenue nearly doubling compared to the prior year as we experienced increased levels of commercial activity in this end market throughout fiscal 2025 versus the prior year. We booked $271 million of new orders in the quarter, which was roughly 1% higher than the prior year.

There were no mega projects in the quarter as our order book was comprised of a higher volume of small- and medium-sized projects. For the full year, we booked $1.2 billion of new orders, 9% higher than fiscal 2024. We finished the year with a backlog of $1.4 billion and registered a book-to-bill of 1.0x for the full year.

Today, our backlog and project schedules are well balanced across the markets and geographies we serve. We also benefit from a healthy mix of large projects as well as core smaller- and medium-sized projects that help maximize productivity across our manufacturing plants. With that said, we have begun to see some divergence emerge as we close out 2025 and across our key end markets.

We believe this is reflective of a global economic environment that is operating at very different speeds, driven by country, region and sector imbalances. Overall, the quality and visibility into future order activity continues to be very good, with strength driven by electric utility, data center and natural gas market opportunities, including large-scale LNG and related natural gas projects, which is offsetting some softness in portions of our traditional oil and gas and petrochemical markets, such as refineries and polyethylene and polypropylene facilities. We continue to actively review and evaluate our available manufacturing capacity.

In August, we announced the next phase of our $12.4 million investment that will add an incremental 335,000 square feet of productive capacity in our Jacintoport facility in Houston. While the Jacintoport yard can be utilized to support any of our customers and market sectors, this investment is primarily focused on supporting our oil and gas customers, particularly the incoming wave of anticipated LNG project development work that we expect to come to market over the next 3 to 5 years. The production and export of U.S. LNG is clearly going to play a critical role in the global energy landscape. And this investment ensures that we continue to advance our industry-leading role in the fabrication of engineered-to-order power distribution solutions for critical applications.

This announcement brings our cumulative investment at the Jacintoport fabrication yard to approximately $20 million over the past 8 years. and nearly $40 million across our 3 Houston manufacturing facilities to support our organic growth plans. We expect this phase of the Jacintoport expansion to be completed by the second half of fiscal 2026.

We continue to evaluate our entire manufacturing footprint for opportunities supporting growth and expansion, along with options that may further improve productivity. We believe that investments like these are the best use of our capital as the project time lines and execution, return on capital and payback periods are highly compelling for our shareholders.

On the inorganic side, we closed the acquisition of Remsdaq during the fiscal fourth quarter. We continue to be incredibly excited around the future of our electrical automation strategy as we now work to complete the integration of the Remsdaq team into the larger Powell family.

We are already experiencing commercial interest around Remsdaq's products across the multiple markets that we serve, including electric utility as well as data center applications within our commercial and other industrial market sector. Our teams began quoting Remsdaq products and technology in North America during the fourth quarter introducing these products to customers on this side of the Atlantic as well as integrating their existing commercial efforts in the U.K. with Powell's customer base there.

We are confident in our ability to scale our total power automation offering at margin accretive economics in the coming years. As we enter our fiscal 2026 the commercial environment for each of our end markets remains positive, as we are optimistic that the momentum we built throughout our fiscal 2025, will continue into the new year.

The fundamentals in the oil and gas markets support our expectation for continued order strength. Specific to the fundamentals of the U.S. natural gas market, the pipeline of LNG projects that we are tracking continues to support our expectation for continued momentum for both greenfield and brownfield orders.

Activity within our commercial and other industrial market also remains healthy, and our progress to further penetrate this market is progressing well. Recent data points and industry commentary by data center operators continue to identify power availability and reliability as key constraints to capacity growth and AI data center expansion.

As a critical supplier of power distribution and control equipment, we continue to see elevated levels of activity as operators execute their capacity growth plans. Opportunities are growing in both size and volume as well as product applications, as we expand our presence in this strategic market.

The outlook for our electric utility market remains robust and balanced across the customers and geographies that we serve. The growing wave of investment in electrical infrastructure to meet growing demand levels is broad and durable, and we expect another strong year of activity in 2026.

I want to thank the entire Powell team for another record year, for their commitment to Powell and our customers and suppliers alike by helping to further our unique position as a supplier of critical electrical distribution components to a growing array of applications.

With that, I'd like to turn the call over to Mike to walk us through our financial results in more detail.

Thank you, Brett, and good morning, everyone. I will begin first with the fiscal fourth quarter business results and then move to the total fiscal year 2025 results.

Revenues for the fourth fiscal quarter of 2025 increased by 8% to $298 million compared to the same quarter in fiscal 2024 of $275 million, and was also higher sequentially by $12 million, driven predominantly on the strength across our electric utility sector. Net orders for the fourth fiscal quarter were $271 million, $4 million higher than the same period 1 year ago, driven by strong year-over-year activity in our commercial and other industrial light rail, traction power and electric utility sectors, which was offset by lower commercial activity across our petrochemical and oil and gas sectors.

Overall, we remain encouraged by the level of commercial activity across all the end markets that we participate in. Considering this level of new order bookings, coupled with the sustained strength of our top line performance, the book-to-bill ratio was 0.9x for the fiscal fourth quarter and 1.0x for the full year fiscal 2025.

Reported backlog at the end of fiscal 2025 increased to $1.4 billion, $41 million higher than the end of fiscal 2024 and on an increasing proportion of electric utility, commercial and other industrial and light rail traction power backlog, partially offset by lower petrochemical backlog levels versus the prior year.

As we exit fiscal 2025, our electric utility and oil and gas sectors each now make up 1/3 of our total backlog. Overall, we are very pleased with both the execution across the business, driving record revenue levels for the year as well as our orders performance continuing to grow and diversify our backlog position as we enter fiscal 2026.

Compared to the fourth quarter of fiscal 2024, domestic revenues of $239 million increased by $4 million or 2%, while international revenues increased by 38% to $68 million on higher volume across most of our international manufacturing and service locations.

From a market sector perspective, revenues from our petrochemical and oil and gas sectors were lower by 25% and 10%, respectively, and challenging comparisons resulting from the large industrial project orders that were booked in fiscal 2023 and executed predominantly in fiscal 2024.

In the fourth quarter of fiscal 2025, the electric utility sector doubled versus the same period 1 year ago, while our light rail traction sector increased by 85%, albeit on a smaller revenue base, and the commercial and other industrial sector was lower by 9% on project timing.

We reported $94 million of gross profit in the fiscal fourth quarter of 2025, which was $13 million or 16% higher than the same period of fiscal 2024. Gross profit as a percentage of revenues increased by 215 basis points to 31.4% of revenues in the current fiscal quarter.

The higher quarterly margin rate is primarily attributable to continued strong project execution across the business delivering favorable project closeouts resulting in an incremental 100 basis points to the fourth fiscal quarter margin rate.

Additionally, we have maintained pricing levels and combined with strong throughput across the business, which is driving incremental volume leverage and productivity, these variables have created a tailwind to margins across most of our operating divisions.

Selling, general and administrative expenses increased by $5.5 million or 25% on higher levels of compensation expenses as well as the Remsdaq acquisition costs. SG&A expenses were $27 million in the fiscal fourth quarter or 9.1% of revenue compared to 7.8% of revenues a year ago.

In the fourth quarter of fiscal 2025, we reported net income of $51.4 million, generating $4.22 per diluted share compared to net income of $46 million or $3.77 per diluted share in the fourth quarter of fiscal 2024. We generated $61 million of operating cash flow in the fiscal fourth quarter, driven mainly on higher earnings during the period.

In August, we completed our recently announced business acquisition of [ Brendan STACK ] Ltd. for a total consideration of $18.4 million, which includes cash acquired of $4.6 million. This transaction had a net cash impact of $11.5 million in the fiscal fourth quarter with contingent payments of roughly $2 million to occur in future periods. In addition, investments in property, plant and equipment totaled $1.8 million during the fiscal fourth quarter as we invest in capacity and productivity projects across the business.

As we recently announced, we've embarked on a critical project that will expand our capacity at our offshore yard in Houston, further strengthening Powell's position in supporting the production and export of U.S. LNG. This roughly $12 million investment falling predominantly during fiscal 2026 will help to ensure that we can confidently fulfill delivery commitments to our customers. Now recapping our total year fiscal 2025.

Revenues of $1.1 billion increased by $92 million or 9% compared to fiscal 2024. We Notably, our electric utility and the commercial and other industrial sectors were higher versus fiscal 2024 by 50% and 19%, respectively, while the petrochemical sector was lower versus the prior year by 19%. Orders were $1.2 billion, 9% or $94 million higher versus fiscal 2024.

Overall, we've been very pleased with the activity across all the end markets that we serve and the resulting orders mix through fiscal 2025. -- gross profit as a percentage of revenues grew 240 basis points year-over-year to 29.4% or $51 million higher than fiscal 2024. The margin rate continues to benefit from a stable pricing environment, exceptional project execution coupled with incremental volume leverage and successful operational and commercial strategies that continue to address the macro inflationary challenges across the supply chain.

Selling, general and administrative expenses were higher by $11 million versus the prior year. Overall, net SG&A expenses as a percentage of revenues were higher versus the prior year by 20 basis points at 8.6% of revenues in fiscal 2025 versus 8.4% in the prior year. In fiscal 2025, research and development spending increased $2 million or 17% versus the prior fiscal year as we continue to make progress on new product design and development. Total R&D spend in fiscal 2025 was $11 million or 1% of revenues. We reported net income of $180.7 million or $14.86 per diluted share in fiscal 2025 and compared to $149.8 million or $1.29 per diluted share in the prior year. Operating cash flow generated in fiscal 2025 was $168 million versus $109 million in the prior year, driven by higher income generated versus the prior year.

In addition to the acquisition of Remsdaq, which was a net cash usage of $11.5 million in fiscal 2025, and Total capital spending on property, plant and equipment was $13 million in fiscal 2025, $1 million higher than the prior year as we completed the expansion of our breaker manufacturing facility in Houston, which spanned across both fiscal 2024 and fiscal 2025.

At the end of fiscal 2025, we held cash, cash equivalents and short-term investments of $476 million $118 million higher than our fiscal 2024 year-end position, reflecting the sustained level of commercial activity across our end markets, coupled with the strong execution across the business. The company holds 0 debt. Looking forward, we are confident that the strong commercial momentum we experienced across our key end markets in fiscal 2025 will carry into fiscal 2026. The -- we believe that the composition and the quality of the current backlog, combined with the sustained business profitability supported by a stable pricing environment, volume leverage and disciplined project execution, will provide meaningful tailwinds for continued performance.

In addition, the company's strong liquidity position and solid balance sheet support significant financial flexibility, positioning Powell for another successful year in 2026.

At this point, we'll be happy to answer your questions.

[Operator Instructions]. And your first question today will come from John Franzreb with Sidoti & Company.

Congratulations on another impressive quarter. I'd like to start with the current operating environment. Can you talk a little bit about if there's been any meaningful change in the competitive landscape or maybe the pricing environment today versus, say, a year ago?

John, thanks again, it's Brett. So if you try to answer in each of our 3 main sectors. As I noted in the prepared comments, oil and gas is still a very good healthy market for Powell.

We are seeing some parts of that subsector of that market, like in Canada, the North Sea, the U.K. with policy in the U.K., a little softer, not as much as we might see day-to-day, but then other parts of the market. The gas, as we talked a lot about in the last couple of years. But more recently, utility taking another step up.

That's a market we strategically have been pursuing for years. And now with the increased demand part and then the C&I part with data center. I would say that market is more demand-driven speed, maybe a little less price sensitive, whereas the other part of the market that the aforementioned subsectors of oil and gas, because it's a little softer, a little bit more price sensitive. So it's a tale of different scenarios regionally buy different sectors right now. And so it's a little different, not just kind of one ubiquitous market across the board.

That makes sense. That makes sense. I'm kind of also curious about your thoughts about seasonality, especially considering the backlog profile I know in years past, it's been de minimis to volatile. How would you kind of characterize how should we expect the upcoming first quarter to kind of lay out given the current job outlook?

Yes, this is Mike. I'll address that one. As we always see in every fiscal year, our first quarter of fiscal is the October, November, December, with the holidays and such. We do anticipate that sequentially, as we exit fourth quarter and report our first quarter it seasonally is softer due to what I just mentioned. That said, as we look forward on a total year basis, we still are very optimistic about next year.

Okay. All right. And just one more question, I'll get back into queue. Regarding the SG&A, you mentioned there is maybe some onetime M&A expenses in the quarter. How big were those expenses just so I can maybe rightsize SG&A on a go-forward basis?

Yes, sure. So on the discrete 4Q basis, John, we were up about $5 million year-over-year, roughly $3 million of that was due to compensation, variable compensation items and $2 million -- a little less than $2 million was acquisition-related legal valuation services.

The next question will come from Chip Moore with ROTH Capital.

Maybe just first for me, C&I, it sounds like you feel very good about the trends there. I think you called out opportunities growing and maybe some urgency on price. Just with the modest decline in the quarter. Was that largely timing or anything to call out there? And then on the go forward, how are you doing the opportunity in some of the newer products you're offering there?

Yes, I think on the quarter, just timing. If you look at that sector, chip spread, by the way, the opportunities are clearly growing, both for things that we have noted in the earlier calls that we are aspiring to bring to market to get inside the 4 walls of the data center. But also on the outside, we continue -- that's an area we are always able to play. But on both fronts, we're making good progress, and the size and breadth of the opportunity for Powell is clearly growing.

I just look at the last quarter's activity, it's -- there's a lot of people -- a lot of conversations going on, a lot of what ifs. And so -- and we're quoting some pretty big things today. And it's it's grown really nicely over the last 2 years for us.

Got it. And Brett, I guess the corollary on utility, that phenomenal growth this quarter, you've been working on that for a long time. But I guess, sustainability of growth there, the trends you're seeing, obviously, it looks like in backlog demand is quite healthy, but any more color there.

Really, this particular strategy around utility that we're working hard at for well over a decade. I'm super pleased with and I appreciate the question. Mike and I were just talking before the call. Today, if you look at oil and gas, in the backlog profile to utility, they're equal weighted. So we want both. We absolutely love our oil and gas customer.

We have decades of relationships we're going to own, and we're going to build that same profile with the North American and U.K.-based utility customers. So we think the demand profile looks good. That includes both where we have been fighting our way into the distribution side of the substation. And now with this kind of increase in demand, we're going to do everything we can to grab as much of that as we can as well. This is a great growth sector for Powell on the distribution side. with the electrical automation strategy and the service strategy. So all 3 of our strategies play here.

Great. And sorry, maybe one more on C&I data center and maybe kind of technical. But Brett, I'd be curious to get your thoughts if you have any. A lot of buzz around 800-volt DC architectures down the road, it just do you guys play there? Or what would be a potential role? And how do you see that evolution?

Yes. We -- a couple of the folks that we're meeting have -- we've got the DC switchgear that we provide to traction. So we have a DC breaker today that fits. We have a design on a rectifier. We would have to do some R&D around that to apply it to a DC structure for the data centers that the power levels are talking about. So -- if you look at how the future DC might develop, you still have the AC tie. So at the power level today, we'd have the 38 kV primary switchgear, which would still be the same tomorrow to D.C. But then as you get inside the DC distribution of the data center potential on the architecture, the Powell technology would play.

We have to do a little little investment around the rectifier as a solution or other solutions to as they are frequently when you're doing the distribution scheme into any facility, but we've had a few folks up that are in the space, seeing what we do and how we do it and chats about what we'd have to do to finish off a few things to get it where they want it to be for tomorrow. So we're in that conversation.

Great. Appreciate that. And Maybe, Mike, for you, just back to the margins and pricing, I think you called out you feel good on backlog and sustainability. Just remind us, I think you called out 100 basis points this quarter. But how should we think about 25% sort of normalized is sort of 28% the right ballpark? Or how are you viewing that?

Yes. I mean, look, it was another really outstanding quarter operationally. We generated roughly 100 basis points of margin due to project closeouts. And from a year-to-date perspective, exiting the year at 29.4% on a year-to-date basis. This had about 125 basis points of project closeouts.

So -- when we think about the sustainability and considering the margins that we see in backlog, we do anticipate a continuation of solid project execution through next year. And considering this, margins in the upper 20s for the total year of fiscal 2026 are realistic.

Next question will come from Jon Braatz with Kansas City Capital.

Brett, a question on the LNG market. It's been about 9 months, 10 months since the pause has ended. And I suppose some would have thought some LNG projects would have reached FID by now. And as you look at those products, is there -- are you surprised they haven't reached -- some haven't reached FID yet? Or is there a little bit of a hang up for some reason?

How to answer this question. It's very -- as I've said in other calls, it's extremely active. It has taken a little more time to your point, John, to spin back up. I think given again, just sitting as Brett, looking at the macro picture with each model and how they're going to market where their cargoes are going to go, who they're signing up in their production agreements.

I kind of get a feel for where why some of the delay, but I'm not overly worried about it. I still feel really good about the fundamentals on many of the projects. And it is -- I didn't have much in my comments on the prepared side on this space other than the general comment that we feel still really good about the sector of gas. And I just reiterate that with you on the call -- on the question here, it's -- it's very strong activity, and I feel good the investment we're making in offshore is going to be very well timed for what's going on, on this next wave.

Okay. Okay. A couple of questions on the end markets. In the C&I segment, beyond data centers, what might be active in that area. And then also in the traction area, orders were up significantly. What are you seeing there that's driving the business in traction?

Yes. So on C&I, yes, clearly, the main driver of that is data centers. And it's, as I noted earlier, with John Franzreb, it's a very active area, and we are seeing some nice opportunities grow. The balance of that would be other industries that we've always had presence, but never really, I'd say, overly hunted, mining has been one of note.

We occasionally see a cycle on pulp and paper integrated facilities. They have a lot of power usage or moving a lot of fluids and up slurries and so that uses a lot of medium voltage. And so that kind of rises and fall. And then occasionally, we'll see some other commercial activities sneak in through an E&C or a distributor because some of that market to distribution that we're getting exposed to we're seeing -- occasionally we'll see some broader industries that we may not have seen as directly in our poly sales channel.

So mostly data center still.

It is largely driven by data centers, and it is growing for us, for sure. The traction piece, yes, it's a nice story. Look, I always said -- we talked about in the company. I love traction. I think we do it very well. The DC side, we've done it now for nearly 30 years -- we're good at what we do. There's a lot of people play in this market, but there's a lot of people that sort of put the fingers in this market and on the contracting side and muddies up.

And there's a reason there aren't that many people that play on the gear side because that time it gets to a company like Powell, got all kind of crazy terms and things that just make you wonder, so there was a lull last couple of years. It does -- it takes a long time to get these projects to market just because of the, what I'll call, the government side, if you will, of the contracting. But there is a broader set of projects that are getting to market now around the East Coast, Ramada up to New York, over Chicago and even in Canada. There's a number of projects that are sort of just timing out at the same time and and we see some other things continuing on into next year, quite frankly, so.

Okay. Okay. Good. A question for you, Mike. In terms of SG&A, as we look forward, obviously, in the fourth quarter, you had some onetime items. But as you continue to see the robust revenue line and the progress that you're seeing there, do you think you can leverage SG&A costs? Or would you think that maybe we'll still see a little bit faster growth in those expenses over revenue?

No, Jon, I think you'll see leverage, especially when you compare it to what we reported in our fourth fiscal quarter with those unusual. When you look at the year-to-date numbers, we reported 8.6% of revenues in the total year '25. That compares to 8.4%, 20 basis points, as I noted in the prepared comments, 20 basis points above where we ended 2024. So relatively flat, and that also has the acquisition cost. So yes, nothing crazy that we see going forward.

Okay. Any acquisition costs in 2026 from the most recent acquisition, obviously?

No, those all were incurred in 2025.

Next question is a follow-up from John Franzreb of Sidoti & Company.

I guess I'm still thinking about the closeouts. And I'm wondering how you would characterize 2025 compared to prior years. Is this kind of a normal level of activity, maybe on a percent of revenue basis or how we should think about it? I just want to get a bit of handle on that.

Yes. Jim, this is Mike. Yes, closeouts, I would say, in 2025, we're a little bit heavier than in prior periods. As you'll see in our K that will be filed this afternoon. The closeouts ran a little better than 1.5% of total revenue, 1.7% to be exact. And as I mentioned in my response to Chip, I mean we do expect to continue this execution, the outstanding execution into 2026. So we should expect to see some project closeouts and are favorable fashion in 2026.

Got it. Got it. And regarding the uptick in R&D, can you talk a little bit about maybe where the spend is going? And when do you expect to see the commercialization of some of these projects?

John, it's Brett. I'll take this one first, and Mike can add color. I think we're going to -- you'll continue to see spending at this level for the next couple of years. I feel good about the progress we're making. When you bring -- we're bringing some wholesale products to market to fill some gaps in our 038 strategy on distribution. So we had some nice wins. We had some learning experiences in '25, but that's normal in the course of getting the engine back up and going and flying the plane at altitude.

I think in '26, I expect to see some some products hit the market that we should see some tangible results to report back to the Street, not done, some. And I think there'll be some iterative effort that will continue on into '27 and '28, just because that's the process. But I do think we'll see more tangible results as we get through the fiscal year next year.

Yes. And I would mention, John, just to get an appreciation of the lead time of some of these projects, these electrical distribution equipment projects. They do have a long lead time, well better than a year after they've been tested and the like. So yes, the R&D has ticked up the last couple of years, and you should begin to see some of these projects exiting the pipeline, but they do take quite a while.

Got it. Got it. And I guess in light of the capacity expansion, can you give us an updated CapEx budget for 2026?

Well, the $12.4 million for the Jacintoport expansion that I expect that to hit in its entirety in fiscal 2026. On top of maintenance and productivity projects that we normally execute call it, the $5 million to $7 million range. And that's what I would expect in 2026.

Got it. And I might have missed this in the prepared remarks, and I apologize, but how much of the backlog is deliverable in the coming 12 months?

About 60% is convertible in 2026.

Got it. Got it. And one last question, and again, this is just a point of clarification. Data center revenue, I mean, maybe for all of fiscal 2025 as a percentage basis? And how does that comp to like 2024? Just trying to contextualize it.

Yes. If you look at our backlog, our backlog for C&I is about 15%. Roughly half of that is today data centers. That's probably 100 to 200 basis points higher than it was last year.

The next question is a follow-up from Jon Braatz of Kansas City Capital.

Mike, just a question on the incentive comp. Was that a sort of a catch-up number in the fourth quarter?

Yes. It is, Jon. What we typically see is we will accrue based on our expected results as we progress through the year. And given the results of our results that we have this year, we did have a catch-up in the fourth fiscal.

Okay. Any -- can you -- can you tell us how much it was? How much of a catch-up?

Well, as I mentioned to John Franzreb a little earlier, the the variable compensation of the $5 million year-over-year increase variable compensation and compensation in general and which would include headcount adds and the like, it was about $3 million. And then the legal and valuation services related to the M&A activity was just under 2.

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, Nick. As you've heard from Mike and I this morning, we are very pleased with the financial results for our total fiscal 2025 financial performance, and we are very proud of the Polo team that delivered for our shareholders. The markets we serve continue to support our belief that fiscal 2026 will be another strong year for Powell.

I would like to welcome our new team members from Remsdaq Limited to Powell. I am very excited to write the next chapter on electrical automation and how Powell will help drive that future. 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 next quarter.

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

Welcome to the Powell Industries Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to Ryan Coleman, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2025 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, and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until August 13. 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 6, 2025, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual 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.

Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell's fiscal 2025 third 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 strong third quarter, as operationally, the team continues to execute at a high level. Our gross profit dollars grew 8% despite roughly flat revenue, leading to a gross margin of 30.7%, which was 230 basis points higher than the prior year. We continue to benefit from favorable volume leverage, effective project execution and the benefit of project closeouts. Revenue was largely unchanged compared to the prior year as lower revenue levels from the oil and gas and petrochemical markets were mostly offset by strong growth in the electric utility, commercial and other industrial international markets. This was mainly a function of project timing as our business can experience lumpiness in our project completion and delivery schedules from time to time.

On the bottom line, we recorded net income of $48 million in the quarter, or $3.96 per diluted share, which was 4% higher than the prior year and a record quarterly EPS for Powell. We saw meaningful acceleration in order activity highlighted by a book-to-bill ratio of 1.3x and sequential backlog growth of 7% to a total of $1.4 billion. The $362 million in new orders was well balanced across the end markets we serve and included multiple substantial awards that I'll detail in a moment.

We remain very comfortable with the project schedules and overall composition of our order book. Our backlog is balanced across the market sectors we serve as well as across the Powell manufacturing footprint. The backlog possesses a healthy mix of both larger projects as well as what we would consider to be core smaller to medium-sized projects.

I'd like to briefly highlight a few of the larger awards we received during the third quarter. In the oil and gas market, we booked 2 large orders for custom power control modules, which have a combined total of over $80 million. Each of these projects will be deployed to separate offshore production locations, one in the Gulf of America and the second to be located offshore from the coast of Africa. We also booked a roughly $60 million order in the electric utility market for a new power generation facility. This project is the largest in Powell's history for this market sector and is a testament to our strategic efforts to diversify our business and establish ourselves as a trusted partner to our utility customers. Our growth in this market has been more than a decade in the making and the investment of our time, effort and capital continues to contribute meaningful returns. In fact, of the $362 million in new orders this past quarter, nearly half of the new awards are within the electric utility market.

Lastly, we also booked a large traction order that totaled roughly $30 million. As we have shared over the last few years, we are committed to the traction market to take a highly selective approach in this market to ensure the alignment of the value we provide to our customers as well matched to our execution model. This particular project, which will be executed out of our Ohio facility is with a customer with whom we are building a long-term, mutually beneficial relationship.

We also continue to execute against our strategy as we pursue Powell's profitable growth and long-term success. A few weeks ago, we announced an agreement to acquire Remsdaq Limited, a U.K.-based manufacturer of state remote terminal units for electrical substation control and automation and generation, transmission and distribution. For decades at Powell, we have delivered electrical distribution solutions to the market with nearly all of our projects requiring some level of electrical automation. We typically purchase a large amount of automation hardware today as part of the overall solution that we deliver to our customers. Remsdaq Limited is an established name for electrical automation in the regulated utility market across the U.K. The acquisition of Remsdaq's people and technology immediately strengthens our electrical automation platform, enhancing our ability to meet an underserved demand with a solution that's accretive to Powell.

In addition to the existing utility market that Remsdaq currently serves, the technology road map that the Remsdaq team has been working towards to support the next generation of SCADA remote terminal units for their existing markets, provides a clear opportunity to leverage this next-generation platform into our North American utility market. Today, at Powell, we are able to influence the hardware side of our electrical automation solutions roughly 30% of the time. With the addition of Remsdaq, we will now be able to offer a 100% Powell built solution to the utility market. And as the next generation of Remsdaq solution is released to the market, we'll look to qualify, offer and implement Powell solutions to all of the markets served by Powell.

In addition to the electrical automation pillar, our latest product initiatives and development activity are helping to build commercial momentum as we pursue further diversification and expansion of our product portfolio. As we discussed last quarter, we launched a few new and innovative products, including a grounding switch for our oil and gas market, and a power control aisle, a compact substation that we are currently building in our recently expanded Powell's factory in Houston as well as our first design of a low voltage switchgear product targeted for inside the data center and associated commercial market. We believe that these new products will span multiple markets and serve as an important validation of our elevated R&D spend in recent years and the IP that we have developed. Most importantly, it furthers our aim of advancing our product-centric strategy to improve the overall future mix of product versus project-based revenues.

Looking ahead, the outlook for each of our end markets remains positive. The fundamentals for the oil and gas market support our expectation for continued order strength, specific to the fundamentals of the U.S. natural gas market. The pipeline of LNG projects that we are tracking continue to support our expectation for continued momentum for both greenfield and brownfield activities as we continue to experience increased LNG activity as the moratorium on permitting activity was lifted earlier this year.

Activity within our Commercial and Other Industrial market also remains healthy and includes broad and increased activity within the data center market. Multiple data points over the last few months confirm the ongoing momentum in data center capacity growth, and we continue to see growing opportunities for Powell as we seek to further penetrate this market with new products. Lastly, the outlook for our electric utility market remains very strong and balanced across the customers and geographies we serve in this market.

Overall, we remain very encouraged by the strong demand across the markets we serve and confident in our ability to deliver value for our customers and stakeholders alike. I'll now turn the call over to Mike to walk through our third quarter financials in more detail.

Thank you, Brett, and good morning, everyone. In the third quarter of fiscal 2025, we reported total revenue of $286 million compared to $288 million or roughly flat versus the same period in fiscal 2024. New orders booked in the third fiscal quarter of 2025 were $362 million, which was 2% higher than the same period 1 year ago.

During the current quarter, we secured 2 mega projects with a combined value exceeding $100 million. One of these represents the largest electric utility project in Powell's history while the other marks our first major offshore oil and gas substation award in several years. As a result of this significant utility project win, our Electric Utility backlog now accounts for 32% of the company's total backlog.

In addition, we also booked a couple of other notable projects in the quarter, one being a large domestic traction order. This is the first substantial traction project we've added to the order book in several quarters, reflecting our disciplined and selective approach to this end market as we've previously communicated. Finally, another notable win came from our international markets where we secured a substantial offshore oil and gas project to be executed by our United Kingdom division, further reinforcing the strength of our global capabilities.

Overall, these project wins are a testament to the activity level and dynamic nature across all the end markets that we participate in. This strong order activity during the quarter, combined with sustained commercial momentum across most of our other end markets resulted in a book-to-bill ratio of 1.3x and a reported backlog of $1.4 billion at the end of the third fiscal quarter, $68 million higher versus 1 year ago and $90 million higher sequentially. Compared to the third quarter of fiscal 2024, domestic revenues decreased by 8% to $225 million on project timing across the U.S. divisions, while international revenues were 39% higher driven by increased project volume across our Canadian operations as well as an increase in activity in the Middle East and Africa. In total, international revenues were up by $17 million to $62 million in the third fiscal quarter.

From a market sector perspective versus the third quarter of fiscal 2024, revenues from our Electric Utility market increased by 31%, while revenues from the Commercial and Other Industrial market and the traction market increased by 18% and 61%, respectively, albeit the traction market starting from a small revenue base. Across our core industrial end markets, the petrochemical and the oil and gas markets were lower by 36% and 8%, respectively, versus the same period 1 year ago on a challenging prior year comparisons as we near completion on the large petrochemical and LNG mega projects that were booked in fiscal 2023.

Gross profit increased by $6 million to $88 million in the third fiscal quarter versus the same period 1 year ago. Gross profit as a percentage of revenue increased by 230 basis points to 30.7% of revenues versus the same period a year ago and was 80 basis points higher sequentially. This performance was driven in large part by the strong margin rates exiting the backlog and the sustained volume leverage across the business in addition to the continued benefit of strong project execution and the resulting favorable project closeouts.

During the quarter, we had a small number of project cancellations resulting from customer scheduling changes and other miscellaneous unusual items that contributed roughly 85 basis points to the fiscal third quarter margin rate. Overall, we're very pleased with the company's continued operational performance during the third fiscal quarter. Margins have remained resilient and are benefiting from more short-cycle product mix in addition to the market dynamics that had generated strong volume leverage and have supported modest pricing accretion, effectively offsetting any inflationary impacts across the business.

Considering these variables, in addition to the quality of the backlog, we anticipate that as we close fiscal 2025 and establish our framework for fiscal 2026, margin levels should approximate the current year-to-date margin rate, excluding any unusual items and project closeout gains which together comprise roughly 150 basis points on a year-to-date basis.

Selling, general and administrative expenses were $25 million in the current period, higher by $3 million, driven by an increased level of compensation expenses across the business as well as acquisition-related expenses in the period. SG&A as a percentage of revenue increased 120 basis points to 8.8% in the current fiscal quarter. In the third quarter of fiscal 2025, we reported net income of $48.2 million, generating $3.96 per diluted share compared to a net income of $46.2 million or $3.79 per diluted share in the third quarter of fiscal 2024.

During the third quarter of fiscal 2025, we generated $47 million of operating cash flow on higher earnings generated in the quarter. Investments in property, plant and equipment in the fiscal third quarter totaled $5.1 million, driven by capital spending related to the completion of the facility expansion at our electrical products facility in Houston as well as new production equipment across our manufacturing footprint.

At June 30, 2025, we had cash and short-term investments of $433 million compared to $358 million at September 30, 2024, and $389 million at March 31, 2025. The company does not hold any debt.

In closing, we are very pleased with our operational and financial performance through the first 9 months of fiscal 2025. As we approach fiscal year-end, we remain confident in the company's strategic positioning and the momentum behind our growth initiatives. Looking ahead, the strength and consistency of commercial activity across all of our end markets reinforces the broadening of our business strategies and provide a solid foundation as we plan for fiscal 2026. Operationally, we are executing effectively and are well positioned to sustain our year-to-date financial performance through the fourth quarter of fiscal 2025 and into the next fiscal year.

At this point, we'll be happy to answer your questions.

[Operator Instructions] The first question comes from John Franzreb from Sidoti & Company.

Congratulations on another great quarter. Brett, I'd like to start with really the stellar bookings profile in the quarter. Some really large projects you were able to bring across the finish line. I'm curious what the opportunity pipeline look like now? How many large projects that they're bidding on? Maybe give us some context of what we're seeing out there?

John, I appreciate the question. Really good quarter. We highlighted in the prepared comments the utility market specifically. As you know, this has been a methodic strategic strategy for us to go build our home markets in the U.S. and Canada. So the big power generation award certainly is -- was an exciting win. It was very competitive. And -- but the broad-based participation from the other -- the broader market, also very solid in the quarter. As we look forward, again, in the oil and gas segment, certainly, the fundamentals of gas, as I've noted last couple of quarters continues to be very active. Timing is little bit more of a challenge this time around, but the amount of activity is very broad and significant that's out there. And so that's something we track, working very hard across the teams. I think the utility market continues to be very solid for us looking forward, given all the various drivers of electrification today in U.S., Canada and the U.K. And commercial and other markets continues to be robust for us. It's from an absolute dollars number smaller, but percentage-wise growing, still opportunistic. I would say that we're still a little bit more reacting than driving our future there. But it is very broad-based, and it is not showing any signs of relenting at least in terms of where we're involved.

That's great. I'm curious, what's your visibility in the revenue profile look like? How far does it extend compared to, I don't know, a year or 2 ago?

John, this is Mike. Yes, our backlog is very transparent, and we're booking out into late fiscal '27 at this stage and big projects would carry over probably into '28. There's a 2- to 3-year lead time for these large projects. So we have very good visibility. Our Q will come out later today. You'll see that roughly 65% of our backlog is slated to convert to revenue over the next 12 months. So yes, that's an area where we have a lot of visibility.

Excellent. And I'm just curious about the gross margin. You outlined three things, but I guess the project closeouts is the one I want to focus on. How much did that contribute to the improvement in gross margin year-over-year?

Yes. Let me refer to the year-to-date margins, John. Through the first 9 months of fiscal 2025, we've recorded 28.6% gross profit as it relates to revenues. That's 250 basis points year-over-year favorable. So of that 250 bps, there's roughly 100 of that, that is attributable to just productivity, organic margin growth through increased throughput, volume leverage, some modest price accretion that's offsetting some of the inflationary pressures in the business. And the remaining 150 bps is really project closeouts. The majority is project closeouts, then you have a small element, call it, probably 30 of that is due to unusual items. So roughly 115, 120 basis points on a year-to-date basis for project closeout gains that we've seen.

Okay. And one last question, I'll get back into queue. The SG&A took a noticeable tick up in the quarter. Was something -- anything unusual there we should be aware of?

Nothing unusual per se. We did have higher variable compensation expenses hit the quarter, and we also had some acquisition-related expenses that hit the quarter from the Remsdaq acquisition.

The next question comes from Chip Moore from ROTH.

I wanted to ask, I guess, first on Electric Utility, very impressive results there again. Just you've talked about this for a while, Brett, but how you've sort of gone after that market and become a trusted partner, just maybe expand on the visibility you're seeing there. Do you think that momentum should continue? And is that a function of becoming a more trusted partner? Is it loan growth? What's the real driver there?

Chip, A little bit of both. I think that if you go back to the original strategy when we started years ago, we really focused on the distribution side of T&D and going after those closed solutions in the yard, moving clients into a more reliable, long-term, better investment in their capital into what we build. And as this generation wave sort of crept up on everybody post pandemic, it's a combination of being there with the end client, the utility and also the engineering partners that are in this space. And so a little bit of mix of both. And so we -- I'm very curious when I meet -- when I get the chance to talk at the end client as to what is the driver? Is it just the typical sort of build-out population and industrial support and how much of that is the other big driver today, which a lot of people talk about the data centers. There's clearly that element moving into the demand piece on generation. And I would say that was absolutely represented this past quarter. When we look out it's pretty -- I sit every week with the team and listen in, and I'd say it's -- there's a lot of opportunity out there still in the utility market. We're pretty excited about this sector for the future.

Great. And maybe a follow-up on Remsdaq, specifically, you talked about next-gen SCADA units and potential there to leverage that into North America. Maybe just expand on that. And I believe this is nicely margin accretive potential business, how you're thinking about that? And just the acquisition itself, how it came about and -- yes.

So we've been looking for a while. We -- when we put out our strategy a couple of years ago on the investor deck side and highlighted electrical automation, this is an area we do think we can move the needle on. We see it every project, some degree, sometimes it's smaller, sometimes it's quite significant as a percentage of the overall project. The RTU we identified is a key building block, and we went around the world and looked at the markets found a great company in Remsdaq, three owners today, one of the owners is the MD. Family-like environment, strong, 30-plus year profile in the regulated utility market with an extremely reliable product from a performance standpoint, which, again, we love and fits right in the Powell. And as we got to know them and they know us and talked about where each group aspires to go, we learned about all their know-how going into their next-generation product, which, of course, was built to support their end markets. And we started understanding it better, how they were going about building this next generation, and we look across the broader RTU market globally, not just our markets, but globally, it has a really impressive potential. So for us, it really became clear this was something that made a lot of sense. And so we feel very excited to bring it on to not just for the U.K. market, which is accretive to our utility sector there. But I feel pretty good we'll be able to port it over pretty quickly here to the utility market and then we'll work to get it in the balance of the markets through taking it through and getting into the ABL, doing your typical awareness meetings and really growing this throughout all Powell. I feel pretty positive about that.

Great. Very helpful. Maybe just one last one, if I could sneak it in. on gross margins, Mike, you talked about that already. I think you also called out short-cycle business maybe increasing here. Just maybe update us on what you're seeing there and how we should think about that going forward?

Yes, sure. Yes. We track our book-to-bill cadence every quarter. And if you look back you go back 18, 24 months, and we've communicated this on prior calls. It ran $30 million to $40 million a quarter. That's ticked up through productivity, throughput, volume and the like, and that's running today in the $50-ish million per quarter cadence. So we are seeing some good throughput uptick in that book-to-bill cadence.

The next question comes from Jon Braatz from Kansas City Capital.

Brett, you saw a couple of new orders in the offshore oil and gas production area. And obviously, that was a large piece of your business years ago. Are you seeing something different in that market that suggests that these orders are more than just sort of one-off? Is the market changing?

Well, I think when it comes to the offshore market, the theme over the last couple of decades has been how capital-intensive it has been. It's a very expensive area for our clients to build in. I do -- I wouldn't say there's a change, Jon, but I'd say the -- some of the work that's going on in the development side, these are good fields to at least from what I understand, I'm not an expert on the geology of these fields. But from what I've read to understand from the client and how they're pulling the trigger on FID, the -- has read this morning about Darren Woods at Exxon, talking about the strong demand outlook on oil for a while on his crystal ball. So I do think that there's some of that globally speaking, that's underpinning these decisions. And so for Powell and our capability, it is exciting to see it come back. We're -- we have a lot of know-how in the company on these offshore modules. They are very difficult, technically speaking, not just electrically speaking, but mechanically, a lot and locking can really get a ride, if you don't do it right. So for us, super exciting to have not just 1, but 2 hit in the quarter. And so both here in Houston and the U.K. we've actually put the teams together from a project delivery standpoint to really focus and make sure we deliver for our clients in these difficult projects.

Okay. They are -- they were relatively small projects compared to maybe prior ones you did years ago. Am I correct in that? I mean some of them were like $100 million, weren't they?

No, no. When you look at an offshore module, I arrive Powell 2011 and 30-40 50 would be a big one back in '11, '12, '15. One of these is right up that, Ali. It's a significant project. And the other one is a little -- not quite half, but also pretty significant. Different -- each one has a different construction methodology for how it's going to go into the offshore environment. There's lots of mechanical technology for how they develop their fields. But at the electrical distribution piece, there's a lot of commonality in terms of how we build that mechanical structure and the electrical solution inside to meet all the codes. And these are pretty -- I'd call them pretty significant, both very strategic for us with great long-term clients, and it was, again, both very competitive. But again, I think the strength of Powell really and our capability and depth of knowledge really help win the day on these.

Okay. And Mike, you made some comments about gross margins for the full year and sort of into 2026. And for the first 9 months, you're at 28.6%, but maybe -- could you clarify sort of what you were suggesting because the margins in the third quarter were at 30.7%. Were you trying to suggest that we're going to be in that 30% area as opposed to 27%, 28%. Can you help us out a little bit about that?

Yes. Sure. I'll try to clarify. As you know, in this long-cycle project business, it's best to look at -- whether it's trailing 12 months or at this point fiscal year, a year-to-date number or 9 months through the year. So you correctly stated, year-to-date, our margins are 28.6, and we had roughly 150 basis points of project closeout gains and onetime unusual items in that number. And once you strip that out, that should approximate the as-sold margins that we see in our $1.4 billion backlog.

Okay. Okay. That's good. Okay. And then finally, you talked a little bit about pricing. You're seeing some pricing. And maybe some of that comes from the short cycle business where maybe the pricing is a little bit better. But on net, could you see even better pricing going forward? Obviously, your markets are strong. Are you able to take a little bit more?

John, let me jump in here first and Mike can jump in behind me. I think there's a couple of elements of pricing. Definitely, the short cycle, some of the things we're trying to do within the strategy do carry better price than the aggregate backlog margin, for sure, albeit smaller absolute dollars, that is part of the strategy. All three of those drive accretive margin. In the project side, the lockage revenue driver that's going to drive Powell for a while. I've noted the last couple of quarters, the pricing is not improving. It's good. But I'd say there are more, I wouldn't say challenges, but we're tuned and watching out really closely to all the various dynamics that every competitive pursuit and what's going on. Every makeup of the job, what is in the job in terms of switchgear and solutions that Powell contribute versus the mechanical part of the solution. So it's -- it would be difficult for me to say we could take more there. I think if anything, it's -- it could change. It depends what happens in the market in the next 24 months. But right now, I don't see that, but I think the strategies that we're chasing and bringing to market do provide the upside to Powell as we build successful outcomes on those.

And John, just to clarify my comment in my prepared comments. Remember, what we're seeing exit the backlog today was booked a year plus ago. So at that point in time, we were getting some accretive pricing but also offsetting some inflation with that. So yes, we are -- retrospectively, we were getting priced to Brett's point, prospectively, it's a little softer.

Okay. Okay. And one final question, your a $60 million utility award. Was that a combined cycle generating facility?

John, have NDA. So it is just a big power generation facility. I will tell you that it is -- it's in excess of 1 gig output and there is definitely an element of supporting the commercial markets as part of that, and then I got a chance to talk to the client. .

You have a follow-up question. It's from the line of Chip Moore with ROTH.

Just a quick one on capacity expansion. You've talked about that, I guess, in a few different areas. Just an update there really around some of the newer products or what you're thinking?

Yes. Chip, it's Brett. I'll jump in here. I appreciate the question. Yes, the -- so the facility that was brought online in April, real change from last quarter. We do have revenue in the factory today, there are projects laid down and the team are building out that facility methodically and incrementally. We did note last quarter, and so I'll take the opportunity with the question just to highlight, we continue to work in offshore expansion. I brought that up that, that might be a possibility based on the future outlook of the market. We continue to progress that. Our internal teams have put together a really nice a couple of options. We're not quite at the point being able to announce it, but I would say we are doing a little bit of prework out there. We spent a little bit of money to move some dirt just in anticipation. So we don't lose anything on timing because if we do decide to spend the capital, we feel the return is warranted. And we didn't want to lose a time element of that as we look out in the next 24, 36 months on what could be coming should we be successful in the market. So that would be an area we are looking for a potential expansion. And then the other area, I wouldn't call it an expansion, but we've talked on the calls before about on the big substations side of things, how does Powell replicate our model without maybe a large investment in fixed assets, brick-and-mortar to build large substations. So we have in the past looked at models, and we are doing some of that again. We've done one 3, 4 years ago where we took all of our know-how and did the engineering and the fabrication and manufacturing of a majority of the project, but then outsource some of that. And so that's an area that we're looking at again today to, again, augment the core part of Powell. So each of those would be revenue accretive in the future.

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

Thank you, Steve. Our third quarter delivered solid performance. Powell's operational teams are the absolute best in the industry. Our engineering, manufacturing and project delivery teams set the standard for delivering critical electrical distribution solutions to the market, meeting our customers' delivery, time lines and budgets. I would like to welcome the employees, customers and supplier partners of Remsdaq Limited to Powell. We are very excited to grow the electrical automation business across all of Powell's end markets, and Remsdaq will play an important role in meeting our aspirations. Thank you to everyone for joining us this morning. We appreciate your continued interest and support, and look forward to updating everyone next quarter.

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