POWELL INDUSTRIES: Administration report and evaluation of the monetary state of affairs and working outcomes (Type 10-Q)

The next dialogue and evaluation of our monetary situation and outcomes of
operations ought to be learn together with the accompanying condensed
consolidated monetary statements and associated notes included elsewhere on this
Quarterly Report on Type 10-Q and with our Annual Report on Type 10-Okay for the
12 months ended September 30, 2020, which was filed with the Securities and Change
Fee (SEC) on December 9, 2020 and is offered on the SEC's web site at
www.sec.gov.
Overview
We develop, design, manufacture and repair custom-engineered tools and
methods which (1) distribute, management and monitor the stream {of electrical} power
and (2) present safety to motors, transformers and different electrically
powered tools. We're headquartered in Houston, Texas and serve the oil and
gasoline markets, together with onshore and offshore oil and gasoline manufacturing,
petrochemical, liquefied pure gasoline (LNG) terminals, pipeline, terminal, mining
and metals, gentle rail traction energy, electrical utility, pulp and paper and
different heavy industrial markets. Revenues and prices are primarily associated to
{custom} engineered-to-order tools and methods and are accounted for below
percentage-of-completion accounting, which precludes us from offering detailed
worth and quantity info. Our backlog contains numerous tasks that
sometimes take a variety of months to supply.
The markets through which we take part are capital-intensive and cyclical in
nature. Cyclicality is predominantly pushed by buyer demand, international financial
situations and anticipated environmental, security or regulatory adjustments which
have an effect on the way through which our clients proceed with capital investments. Our
clients analyze numerous components, together with the demand and worth for oil, gasoline
and electrical power, the general financial and monetary atmosphere,
governmental budgets, regulatory actions and environmental considerations. These
components affect the discharge of recent capital tasks by our clients, which
are historically awarded in aggressive bid conditions. Scheduling of tasks
is matched to the client necessities, and tasks sometimes take a variety of
months to supply. Schedules could change in the course of the course of any explicit
mission, and our working outcomes can, due to this fact, be impacted by components
outdoors of our management.
Inside the industrial sector, particularly oil, gasoline and petrochemical, the
demand for our electrical distribution options could be very cyclical and carefully
correlated to the extent of capital expenditures of our end-user clients as
effectively as prevailing international financial situations.
Starting in late Fiscal 2018, the mixture of a rising international financial system,
ample sources of favorably priced pure gasoline feedstock, and an power
business give attention to transition to pure gasoline and cleaner-burning fuels drove an
improve in capital funding alternatives, particularly throughout the oil, gasoline
and petrochemical sectors. A few of these alternatives have been for pure gasoline
associated tasks concentrating on international demand for cleaner-burning fuels.
Moreover, tasks inside the home petrochemical sector benefited from
the low feedstock costs of pure gasoline. Particular to pure gasoline, the enterprise
was awarded a considerable contract within the second quarter of Fiscal 2020 that
will assist the built-in electrical distribution necessities for a big
home industrial complicated and ought to be considerably accomplished in Fiscal
2022. Nevertheless, we started to expertise diminished business exercise in Fiscal 2020
pushed largely by the uncertainties throughout our industrial finish markets in
the U.S. ensuing from the COVID-19 pandemic. Contemplating the lengthy cycle nature
of our enterprise, we anticipate that these cyclical situations will persist
all through Fiscal 2021.
Influence of the COVID-19 Pandemic and Oil and Fuel Commodity Market Volatility on
Powell
Via the primary half of Fiscal 2021, the COVID-19 pandemic continues to
considerably affect international financial situations. This pandemic has negatively
impacted power demand, which in flip has resulted in appreciable volatility
throughout international oil and gasoline commodity markets. The demand for our merchandise and
companies in addition to our operations have been negatively impacted by COVID-19,
ensuing from the related discount in oil and gasoline demand and volatility in
commodity costs famous above. Because of this, a few of our industrial clients are
deferring or suspending their deliberate capital expenditures. Sure of our
clients have requested that we delay or cancel our manufacturing on their tasks
as their operations have been negatively impacted by this pandemic and the
diminished oil and gasoline demand which has resulted in recognition of cancellation
charges based mostly on contract phrases and the extent of our progress on the tasks. We
proceed to work with and overview the contracts with our key suppliers who've
been impacted by this pandemic to make sure that we're capable of meet our buyer
commitments.
In response to the decrease demand throughout choose finish markets, now we have taken and
will proceed to take numerous actions to cut back prices. Throughout Fiscal 2020, we
diminished our international workforce and diminished our capital and discretionary spending
in response to present enterprise situations and can proceed to observe the
financial situations in the course of the the rest of Fiscal 2021.
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As mentioned additional below “Outlook” under, it’s tough to foretell the financial affect that this pandemic, in addition to the diminished demand for oil and gasoline and the volatility of commodity costs, may have. about our enterprise, outcomes of operations and future money flows. .

Outcomes of Operations
Quarter Ended March 31, 2021 In comparison with the Quarter Ended March 31, 2020
(Unaudited)
Income and Gross Revenue
Revenues decreased by 22%, or $32.9 million, to $118.7 million within the second
quarter of Fiscal 2021, attributable to a lower in orders in addition to mission delays
and cancellations of potential tasks related to the worldwide financial
affect ensuing from the COVID-19 pandemic and related discount in demand
throughout the oil and gasoline finish markets. These cyclical market situations, which
started within the second half of Fiscal 2020, led to a discount in mission bookings
and mission delays which have negatively impacted, and can proceed to
negatively affect, our revenues in Fiscal 2021. Home revenues decreased, as
famous above, by 27%, or $32.9 million, to $87.9 million within the second quarter of
Fiscal 2021. Included in our home revenues is our giant home industrial
mission awarded in Fiscal 2020, which accounted for about 20% of our
consolidated revenues for the second quarter of Fiscal 2021. Worldwide
revenues elevated by $0.1 million, to $30.8 million within the second quarter of
Fiscal 2021 on account of decrease business exercise throughout our worldwide
operations. Our worldwide revenues embody each revenues generated from our
worldwide amenities in addition to revenues from export tasks generated at
our home amenities.
Income from our oil and gasoline finish markets decreased by 3%, or $1.8 million, to
$50.1 million within the second quarter of Fiscal 2021, whereas petrochemical income
decreased by 78%, or $37.1 million, to $10.2 million within the second quarter of
Fiscal 2021, in every case primarily because of the uncertainty throughout our finish
markets. Income from utility markets elevated by 17%, or $4.2 million, to
$28.5 million, and traction market income elevated by 9%, or $1.2 million, to
$15.1 million within the second quarter of Fiscal 2021, as the combo of our tasks
shifts throughout our international working amenities. Income from all different markets
mixed elevated by $0.7 million to $14.8 million within the second quarter of
Fiscal 2021.
The discount in revenues led to a subsequent discount in gross revenue,
lowering by 42%, or $12.5 million, to $17.2 million for the second quarter of
Fiscal 2021. Gross revenue as a share of revenues decreased to 14% within the
second quarter of Fiscal 2021, in comparison with 20% within the second quarter of Fiscal
2020. The lower in gross revenue as a share of revenues was pushed in
half by underutilization throughout our Texas manufacturing amenities ensuing
from the decrease quantity in addition to a one week shutdown attributable to a statewide energy
outage ensuing from winter storm Uri, but in addition was adversely impacted by the
rising commodity prices, particularly for copper and metal.
Promoting, Normal and Administrative Bills
Promoting, common and administrative bills decreased by 10%, or $1.9 million,
to $16.7 million within the second quarter of Fiscal 2021, pushed by the
restructuring actions that have been initiated within the third quarter of Fiscal 2020,
in addition to a discount in personnel prices and decrease travel-related prices
ensuing from the COVID-19 pandemic. Promoting, common and administrative
bills as a share of revenues was 14% in the course of the second quarter of Fiscal
2021 in comparison with 12% in the course of the second quarter of Fiscal 2020, primarily attributable to
the lower in revenues.
Revenue Tax Provision/Profit
We recorded an earnings tax good thing about $0.9 million within the second quarter of
Fiscal 2021, in comparison with an earnings tax provision of $2.1 million within the second
quarter of Fiscal 2020. The efficient tax price for the second quarter of Fiscal
2021 was 81%, in comparison with an efficient tax price of twenty-two% within the second quarter of
Fiscal 2020. For the three months ended March 31, 2021, the efficient tax price
was favorably impacted by the relative quantities of earnings/loss acknowledged in
numerous tax jurisdictions. The efficient tax price was additionally favorably impacted by
the estimated Analysis and Improvement Tax Credit score (R&D Tax Credit score) and the
projected utilization of web working loss carryforwards in Canada that have been
absolutely reserved with a valuation allowance within the second quarter of Fiscal 2021
and 2020.
Internet Revenue/Loss
Within the second quarter of Fiscal 2021, we recorded a web lack of $0.2 million, or
$0.02 per diluted share, in comparison with web earnings of $7.4 million, or $0.64 per
diluted share, within the second quarter of Fiscal 2020. This lower is
attributable to decrease revenues within the second fiscal quarter of 2021 versus the
prior 12 months and the related leverage affect ensuing from the decrease international
demand throughout our industrial finish markets, in addition to rising commodity prices
for each copper and metal.

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Again

The order backlog at March 31, 2021 was $436.6 million, a lower of 6% from
$464.9 million at December 31, 2020 and a lower of 23% from $566.4 million
backlog at March 31, 2020. Bookings, web of cancellations and scope reductions,
decreased by 71% within the second quarter of Fiscal 2021 to $88.5 million, in contrast
to $300.7 million within the second quarter of Fiscal 2020, primarily attributable to a
substantial contract awarded within the second quarter of Fiscal 2020 that can
assist the built-in electrical distribution necessities for a big home
industrial complicated and decreased international demand throughout our core oil and gasoline
markets.
Six Months Ended March 31, 2021 In comparison with the Six Months Ended March 31, 2020
(Unaudited)
Income and Gross Revenue
Revenues decreased by 21%, or $60.4 million, to $225.3 million within the six months
ended March 31, 2021, attributable to a lower in orders in addition to mission delays and
cancellations of potential tasks related to the worldwide financial affect
ensuing from the COVID-19 pandemic and related discount in demand throughout
the oil and gasoline finish markets. Home revenues decreased by 26%, or $58.5
million, to $168.5 million within the six months ended March 31, 2021. Worldwide
revenues decreased by 3%, or $1.9 million, to $56.8 million. Our worldwide
revenues embody each revenues generated from our worldwide amenities as
effectively as revenues from export tasks generated at our home amenities.
Income from our oil and gasoline markets decreased by 19%, or $21.8 million, to
$90.2 million within the six months ended March 31, 2021. Petrochemical income
decreased by 75%, or $58.4 million, to $19.4 million within the six months ended
March 31, 2021. Income from utility markets elevated by 20%, or $9.4 million,
to $56.6 million, and traction market income elevated by 28%, or $6.2 million,
to $28.5 million within the six months ended March 31, 2021, as the combo of our
tasks shifts throughout our international working amenities. Income from all different
markets mixed elevated by 16%, or $4.2 million, to $30.6 million within the six
months ended March 31, 2021.
The discount in income led to a discount in gross revenue of 31%, or $16.1
million, as in comparison with the primary half of Fiscal 2020. Nevertheless, gross revenue of
$35.4 million for the primary half of Fiscal 2021 benefited from favorable shut
out good points on sure tasks ensuing from value and productiveness efficiencies
and to a lesser extent from cancellation charges from sure contracts in our
North American manufacturing amenities, which was partially offset by increased
commodity costs and manufacturing unit underutilization. Gross revenue as a share of
revenues decreased to 16% within the six months ended March 31, 2021, in comparison with
18% within the six months ended March 31, 2020 on account of the discount in
revenues famous above.
Promoting, Normal and Administrative Bills
Promoting, common and administrative bills decreased by 6%, or $2.3 million,
to $33.5 million within the six months ended March 31, 2021, partially because of the
restructuring motion taken within the third quarter of Fiscal 2020 in addition to the
decreased personnel prices and travel-related prices. Promoting, common and
administrative bills, as a share of revenues elevated to fifteen% in the course of the
six months ended March 31, 2021, in comparison with 13% in the course of the six months ended
March 31, 2020, primarily because of the lower in revenues.
Revenue Tax Provision/Profit
We recorded an earnings tax good thing about $0.8 million within the six months ended March
31, 2021, in comparison with an earnings tax provision of $2.7 million within the six months
ended March 31, 2020. The efficient tax price for the six months ended March 31,
2021 was 59%, in comparison with an efficient tax price of 21% for the six months ended
March 31, 2020. For the six months ended March 31, 2021 and 2020, the efficient
tax price was favorably impacted by the R&D Tax Credit score in addition to the projected
utilization of web working loss carryforwards in Canada that have been absolutely
reserved with a valuation allowance. Conversely, the efficient tax price was
negatively impacted by a discrete merchandise associated to the institution of a
valuation allowance in opposition to the UK deferred tax property within the six months ended
March 31, 2020.
Internet Revenue/Loss
Within the six months ended March 31, 2021, we recorded a web lack of $0.6 million,
or $0.05 per diluted share, in comparison with web earnings of $10.2 million, or $0.87
per diluted share, within the six months ended March 31, 2020, primarily attributable to a
decline in revenues and gross revenue ensuing from decrease orders and mission
delays attributable to the financial affect ensuing from the COVID-19 pandemic and
the related discount in international demand throughout our industrial finish markets.



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Again

The order ebook at March 31, 2021 has been $ 436.6 million, a lower of 8% in comparison with
$ 476.8 million at September 30, 2020. Reservations, web of cancellations and reductions in scope, fell by 59% in the course of the half-year ended March 31, 2021 at
$ 179.6 million, in comparison with $ 438.1 million inside six months March 31, 2020. The lower in reservations is primarily attributable to the big contract awarded within the second quarter of fiscal 2020 and decrease international demand in our core oil and gasoline markets.

Outlook

As famous in "Overview" above, the markets through which we take part are
capital-intensive and cyclical in nature. A good portion of our revenues
has traditionally been from the oil, gasoline and petrochemical markets. Oil and gasoline
commodity worth ranges have been unstable over the past a number of years, and our
clients have in sure circumstances delayed or cancelled a few of their main capital
funding tasks. Starting in late Fiscal 2018 via the primary quarter of
Fiscal 2020, our clients' selections to spend money on tasks in our key oil and
gasoline and petrochemical markets have been influenced to some extent by relative
stabilization of commodity costs and the elevated international demand for
cleaner-burning fuels throughout that time period. We imagine that this alteration in
market sentiment throughout that time period had a good affect on our orders
and backlog getting into Fiscal 2020. Nevertheless, the latest declines in oil costs and
the worldwide financial impacts from COVID-19 have had, and should proceed to have, a
adverse affect on our enterprise going ahead, as mentioned in additional element
under. Particular to the power business give attention to transition to pure gasoline and
cleaner-burning fuels, the enterprise was awarded a considerable contract in Fiscal
2020 that can assist the built-in electrical distribution necessities for a
giant home industrial complicated and ought to be considerably accomplished in
Fiscal 2022.
Our working outcomes are impacted by components such because the timing of recent order
awards, buyer approval of ultimate engineering and design specs and
delays in buyer building schedules, all of which contribute to short-term
earnings variability and the timing of mission execution. Our working outcomes
even have been, and should proceed to be, impacted by the timing and determination of
change orders, mission close-out and determination of potential contract claims and
liquidated damages, all of which may enhance or deteriorate gross margins
in the course of the interval through which this stuff are resolved with our clients. These
components could lead to intervals of underutilization of our assets and
amenities, which can negatively affect our capacity to cowl our fastened prices.
The sturdy business exercise and subsequent orders in Fiscal 2018 and 2019 led
to stable income and working outcomes for Fiscal 2020. We started to expertise
decrease business exercise in Fiscal 2020 pushed largely from the
uncertainty ensuing from the COVID-19 pandemic, as mentioned in "Overview"
above. Contemplating the lengthy cycle nature of our enterprise, we anticipate these
cyclical situations will persist all through Fiscal 2021. We are going to proceed to
monitor the variables that affect our markets whereas adjusting to the worldwide
situations with the intention to keep a aggressive value and technological benefit
within the markets that we serve.
The results of a chronic financial decline may embody, however are usually not
restricted to, a continued discount in business and industrial exercise.
Accordingly, the Firm can't moderately estimate the period or severity of
this pandemic, or the extent to which the disruption could materially affect our
enterprise, outcomes of operations or money flows. We are going to take prudent measures to
keep our sturdy liquidity and money place, which can embody decreasing our
capital expenditures and analysis and growth prices, in addition to decreasing or
eliminating future dividend funds.


Liquidity and Capital Assets
As of March 31, 2021, present property exceeded present liabilities by 2.5 occasions,
and our debt to whole capitalization was 0.13%.
Money, money equivalents and short-term investments decreased to $153.9 million at
March 31, 2021, in comparison with $178.9 million at September 30, 2020. This lower
in money was primarily pushed by the timing of contract billing milestones. We
imagine that our sturdy working capital place, accessible borrowings below our
credit score facility and accessible money ought to be ample to finance future
working actions, capital enhancements, analysis and growth initiatives
and debt repayments for the foreseeable future.
We've got a credit score settlement with Financial institution of America, N.A. (the "U.S. Revolver")
which is a $75.0 million revolving credit score facility accessible for each borrowings
and letters of credit score and expires September 27, 2024. On March 12, 2021, we
entered into a primary modification to the U.S. Revolver which, amongst different issues,
amended sure phrases associated to the calculation of the consolidated leverage
ratio from gross leverage to web leverage. On account of the primary modification,
as much as $30 million could also be
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deducted from the quantity of letters of credit score excellent (to not be lower than
zero) when calculating the consolidated funded indebtedness which is a part
of the consolidated web leverage ratio. Moreover, we now have the choice to
money collateralize all or a portion of the letters of credit score excellent, which
would favorably affect the consolidated funded indebtedness calculation and the
consolidated web leverage ratio.
As of March 31, 2021, there have been no quantities borrowed below the U.S. Revolver,
and letters of credit score excellent have been $38.6 million. As of March 31, 2021,
$36.4 million was accessible for the issuance of letters of credit score and borrowing
below the U.S. Revolver. Whole long-term debt, together with present maturities,
totaled $0.4 million at March 31, 2021 associated to excellent industrial
growth income bonds. We're required to take care of sure monetary
covenants, essentially the most important of that are a consolidated web leverage ratio
of lower than 3.0 to 1.0 and a consolidated curiosity protection ratio of higher
than 3.0 to 1.0. The consolidated leverage ratio is our most restrictive
covenant and a lower in our earnings earlier than curiosity, taxes, depreciation,
amortization and stock-based compensation (EBITDAS) may prohibit our capacity
to subject letters of credit score below the U.S. Revolver. For additional info
relating to our debt, see Notes E and F of Notes to Condensed Consolidated
Monetary Statements.
Roughly $28.2 million of our money and money equivalents at March 31, 2021
was held outdoors of the U.S. for worldwide operations. It's our intention
to indefinitely reinvest all present and future overseas earnings internationally
with the intention to guarantee ample working capital to assist our worldwide
operations. Within the occasion that we elect to repatriate some or all the overseas
earnings that have been beforehand deemed to be indefinitely reinvested outdoors the
U.S., we could incur extra tax expense upon such repatriation below present
tax legal guidelines.
Working Actions
Working actions used $18.1 million in the course of the six months ended March 31,
2021 and offered $7.4 million throughout the identical interval in Fiscal 2020. Money stream
from operations is primarily influenced by mission quantity, the timing of
milestone funds from our clients and the fee phrases with our suppliers.
This lower in working money stream was primarily attributable to a lower in accounts
receivable collections and the timing of contract billing milestones.
Investing Actions
Investing actions used $1.2 million in the course of the six months ended March 31,
2021 in comparison with $2.7 million offered throughout the identical interval in Fiscal 2020.
The rise in money utilized by investing actions within the first half of Fiscal
2021 was primarily attributable to short-term funding exercise partially offset by a
lower in capital expenditures and proceeds obtained from a Firm-owned life
insurance coverage coverage associated to a retired worker.
Financing Actions
Internet money utilized in financing actions was $7.1 million in the course of the six months
ended March 31, 2021 and $7.0 million throughout the identical interval in Fiscal 2020,
which primarily consisted of roughly $6.0 million of dividends paid in
every interval.
New Accounting Requirements
See Be aware A of Notes to Condensed Consolidated Monetary Statements included in
this report for info on new accounting requirements.
Important Accounting Insurance policies and Estimates
The dialogue and evaluation of our monetary situation and outcomes of operations
are based mostly on our condensed consolidated monetary statements, which have been
ready in accordance with U.S. GAAP. The preparation of those condensed
consolidated monetary statements requires administration to make estimates and
assumptions that have an effect on the reported quantities of property and liabilities,
disclosures of contingent property and liabilities identified to exist on the date of
the condensed consolidated monetary statements and the reported quantities of
revenues and bills in the course of the reporting interval. We consider our estimates on
an ongoing foundation, based mostly on historic expertise and on numerous different
assumptions which are believed to be affordable below the circumstances. There
may be no assurance that precise outcomes is not going to differ from these estimates.
There have been no materials adjustments to our vital accounting insurance policies as
disclosed in our Annual Report on Type 10-Okay for the fiscal 12 months ended
September 30, 2020, which was filed with the SEC on December 9, 2020.
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