Powell Industries Inc (POWL) 2012 Q2 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Powell Industries' second-quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. This conference is being recorded today, Wednesday, May 9, 2012.

I would now like to turn the conference over to Ms. Karen Roan of DRG&L. Please go ahead, ma'am.

Thank you, Camille. Good morning, everyone. We appreciate your joining us today for Powell Industries' conference call to review fiscal 2012 second-quarter results. We would also like to welcome our internet participants listening to the call simulcast live over the internet.

Before I turn over the call to management, I have the normal details to cover. If you did not receive an e-mail of the news release issued yesterday afternoon, please call our offices at DRG&L, and we will get one to you. That number is 713-529-6600. Also, if you want to be on the permanent e-mail distribution list for Powell news releases, please relay that information to us.

There will be a replay of today's call, and it will be available by webcast by going to the Company's website at www.Powellind.com, or a recorded replay will be available until May 16, 2012. 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, May 9, 2012, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening.

As you know, this conference call includes certain statements, including statements relating to the Company's expectations of its future operating results, that may be deemed to be 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 the 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 strategy. For further information, please refer to the Company's filings with the Securities and Exchange Commission.

Now, with me this morning are Tom Powell, Chairman of the Board and CEO, and Don Madison, Executive Vice President and Chief Financial and Administrative Officer. I will now turn over the call to Tom.

Thank you, Karen, and good morning, everyone. Thank you for joining us today to review our 2012 second-quarter results. First, let me say I am pleased to be back after missing our first quarter's earnings call while having my right knee replaced. I only missed a couple of weeks; I'm not dancing yet, but I can still kick whenever it's needed. I will begin by just making a few initial comments on the quarter and the current market environment. And then Don will cover the financial details, and then we will be happy to answer your questions.

The business of delivering custom-engineered fixed-price projects has a number of challenges. For example, a recently completed project had over 160,000 man hours of assembly and electrical work, and that doesn't include the engineering or testing. So, it's easy to see that at times, unforeseen issues can create additional and unexpected costs, while at other times, the tasks involved go more smoothly than expected, and you get to enjoy the benefits. Execution is the key, and our people do a very fine job here in the Organization. All of the work we have done to improve project management and operations paved the way for an improved quarter, resulting in earnings of $0.63 per share.

Our efforts in Canada are on track. While there is still work to be done there, we have seen improvements in the operational results, and I fully expect to see these results continue to move in a positive direction. The Canadian oil and gas market is experiencing substantial activity, which will increase with ongoing development of the oil sands regions. This is an important area for Powell, and we remain confident and committed to being a significant participant.

For the Company as a whole, inquiry levels are very high. The booking of business is good, and we continue to see budgetary requests occurring at a very strong pace. However, it is clear that there is still much pent-up demand, and many projects are sitting on the sidelines, uncertain about the US political environment, upcoming elections, and the overall economic direction. Even under these conditions, we are booking the orders and building our backlog, demonstrating success in our efforts to develop and maintain solid customer relationships, and to be the provider of choice.

Now, I'd like to turn the call over to Don Madison for more detailed results. Thanks.

Thank you, Tom. Revenues were $181.5 million in the second quarter, an increase of $56 million or 45% improvement compared to the second quarter of fiscal 2011. This increase in revenues is a result of the increase in our backlog of orders compared to a year ago. Gross profit as a percentage of revenues was 19% in the second quarter of fiscal 2012, compared to 20% in the second quarter of fiscal 2011. This decrease in gross profit is primarily due to competitive market pressures that existed during the period in which orders were awarded, as well as project execution challenges at our Canadian operations.

Selling, general and administrative expenses were $21.5 million, unchanged from last year. Our SG&A expenses as a percentage of revenues decreased to 12% in the second quarter, compared to 17% a year ago due to higher revenues. Amortization expense was $704,000, a decrease of $550,000 compared to the second quarter a year ago. This decrease is a result of the lower balance of intangible assets following the impairment charge recorded last year.

For the second quarter of fiscal 2012, we recorded a provision for income taxes of $4.6 million, which reflects an estimated tax liability on our non-Canadian earnings. Second-quarter losses incurred at our Canadian operations have not been tax-affected. We have reported a net income of $7.4 million or $0.63 per diluted share for the second quarter of fiscal 2012, compared to $1.7 million or $0.15 per diluted share in the second quarter of 2011.

For the six months ended March 31, 2012, revenues were $339 million compared to $250 million in the same period a year ago. Domestic revenues increased by 22% to $202 million. While international revenues increased by $52 million, or 62%, primarily due to the size and the number of international projects for the oil and gas sector. Gross margin was 16% for the six-month period, compared to 20% a year ago. This decrease in gross profit results from project-execution challenges on a few large projects in Canada, as well as competitive margins realized on projects during the first half of 2012.

SG&A expenses were $41.3 million, compared to $42.5 million in the first six months of 2011. This reduction is due to decreases in legal and contract services, as well as variable compensation expenses. Year-to-date, our provision for income taxes reflects an effective tax rate of 52% compared to 40% for the first six months of fiscal 2011. The increase in our effective tax rate is primarily due to our inability to record a tax benefit on pretax losses in Canada. For the six months ended March 31, 2012, net income was $5.7 million or $0.48 per diluted share, compared to $4.2 million or $0.35 per diluted share a year ago.

As of March 31, our order backlog was $497 million, compared to $474 million at the end of December, and $437 million a year ago. New orders were $203 million in the second quarter; this compares to $189 million in the first quarter, and $217 million in the second quarter of 2011.

For the six months ended March 31, 2012, cash provided by operating activities totaled $23 million. Investments in property, plant and equipment totalled approximately $19 million. And at March 31, 2012, we had cash of $128 million compared to $124 million at the end of fiscal 2011, and long-term debt and capital lease obligations, including current maturities, totaled $4.6 million.

Looking ahead -- based on our backlog and current business conditions, we expect full-year fiscal 2012 revenues to range between $675 million and $725 million. And full-year earnings to range between $1.25 and $1.50 per diluted share.

Now, let me turn the call back to Tom for a few final comments.

Thank you, Don. Powell is a strong company, and we take great pride in the fact that we are often the first choice of our customers in providing solutions for their equipment needs. We are tied to the capital investments of our customer base, and we are subjected to global economic cycles. However, with each major market cycle, we have the opportunity to build and strengthen our relationships. We use the down-cycles to improve our ability to serve our customers, and use the up-cycles to deploy our strength and serve the market in the manner expected from Powell.

In summary, our margins were better than expected in the second quarter, as our Organization exceeded performance targets and operated very efficiently. The Canadian operations are showing improvement, and we are optimistic about further progress through the balance of the year. Inquiries and budget requests are very high, and our order rates are good, overall. Regarding current activity in our major markets, interest in international oil and gas investments remains extremely high. And in both the US and Canada, there are more light-rail infrastructure projects moving forward. Finally, we are seeing domestic utilities showing some signs of renewed capital investment activity.

Before we go to questions, I'd like to make a few more comments about the CEO search. Finding the right person to lead the Company is extremely important. It is more important that we make the right choice than a fast one. To that end, a search committee working with our outside search firm is working hard to evaluate candidates carefully, considering their industry experience and personal fit within the Powell organization. We expect to have an announcement in the coming months.

At this point, Don will be happy to answer your questions. (laughter)

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session.

(Operator Instructions)

Please ask one question and one follow-up, then re-queue for additional questions. Our first question is from the line of Fred Buonocore, with Rodman & Renshaw. Please go ahead.

Good morning. My question relates to the obvious, the outstanding margin performance in the quarter, and looking at your guidance, it would seem to imply that you don't expect this sort of performance to persist for the balance of the year, if I am interpreting the EPS guidance correctly. Can you comment on -- a little more color on how things unfolded in Q2, and then what you expect for the balance of the year?

Fred, clearly, we had some, what I think is very positive, exceptional type of performance in some of the projects that were coming towards the final stage of completion in the second quarter. As we have tried to talk about in the press release, as well as in the prepared comments is that while these projects have been very large, it is kind of like a lot of other things we have talked about in a project business. It can go for you, it can go against you. We had some very effective projects go together, a minimal amount of work that we had to do when we went into some of the testing of it, and that's -- clearly better than you would typically expect based on historical performance. When looking at our guidance, we have to be a little more realistic, as opposed to putting best case scenarios out there on projects that are in the backlog. The guidance that we have put out is based on our projections, and those projections are our best estimates based on the amount of work content in each of the projects. Clearly, I would say there is upside opportunities to some of those, but there's probably hidden risk in others.

Okay, fair enough, that's helpful. And then for my follow-up question, now that we are halfway through fiscal year '12 and backlog at its highest level, since fiscal year '09, if I am correct, it seems like you are probably getting increasingly good visibility for the next several quarters. So with that in mind, can you give us a sense at this point for what you might expect from a top line growth perspective in 2013, assuming the backlog stays at its current level or continues to grow moderately on a sequential basis for the balance of the year?

Fred, it is way too early for to us start putting out guidance or estimates for our 2013, but clearly, as we have talked in the past, we are a backlog [grid] Company, and as we are able to continue to grow our backlog, that positions us well for 2013.

Thank you. Our next question is from the line of John Franzreb with Sidoti & Company. Please go ahead.

Good morning, Tom and Don. Tom, was there any impact from the problematic Powell Canada job in the second quarter? Can you kind of call that out, if there was?

Yes, there was some carry-over impact as we went through what you consider the punch list or deficiency list at the end of the project that did roll over into the early part of the second quarter. But that project has now been completed, and the full impact of that should be -- have been recorded in the second quarter.

Do you have a number for us, so we can maybe pull it out and see what the margin impact was?

No. It was much smaller than in the previous quarter. It is the primary reason that we continue to report a loss in the period. We did see substantial improvements over the previous quarter from the balance of the business. Actually, while I am not here to make any predictions, the organization did very well in their final month, and actually was able to report some earnings in the black. But to say that that is a continuous trend into the second half of the year, it is too early to say; there's still things in the backlog. But when you are looking at, just to give you an order of magnitude, the impact of that project in the second quarter, probably had a $0.01 to $0.02 EPS impact on the Corporation. Without that project, we might have been $0.65 plus or minus.

Okay, that's kind of what I'm looking for, Don. In regards to your guidance, last quarter, you gave it absent any potential recoveries from this job. I just want to make sure we are still in the guidance, we are not assuming any recoveries from the job, and what is -- Maybe you can give us, also, an update on how that recovery negotiation is proceeding.

Okay, that isn't -- No claims or recoveries that have not been documented by a change order have been included in our actuals or in our forecast. We did go through some discussions with the client in the second quarter, and were able to generate some modest change orders. Those were reflected in the second quarter, and that's the net number when I was talking a minute ago as far as the impact of that project. When you are looking at progressing forward, we are working on preparing a claim that we expect to present to our client here in the next few weeks. I think that we will probably make the end of May before we present that, because at this point forward, I think everyone has agreed that we just need to put all of the cards on the table and figure out where we are, both from a Powell perspective, as well as a client perspective. How quick that will progress at this point in time, is way too early to project.

Okay, and what kind of size are we talking here?

It would be a claim that would exceed the cost that we have incurred and reported on our financial statements.

Okay, thank you very much. I'll get back into queue.

Thank you.

(Operator Instructions)

Our next question is from the line of Brent Thielman with D.A. Davidson. Please go ahead.

Hi, good morning, guys. Congratulations on a great quarter. Tom or Don, were the orders in the quarter still coming predominantly from Canada, or are you seeing more of a shift in mix of orders coming from the US?

Brent, I must have misled you in the past. We have never seen a disproportionate amount of work coming from Canada. The vast majority of the work is coming from the oil and gas sector; most of it coming from international projects, but not necessarily exclusively in Canada. If you are looking it at the Canadian backlog growth, it is -- we have seen real growth over the last six to eight months. We're approaching double from what we had maybe eight or nine months ago, but when you are looking at the total Canadian backlog versus the Corporation, it's still less than 10% of our total backlog.

Okay, thanks for clarifying that. Then I was interested in the comment on the rail infrastructure jobs. Could you provide any more sort of color on what you are seeing there? I know these tend to be larger jobs for you; maybe a timeline of what you see coming forward there?

When you are looking at -- from a historical perspective, the last six months, we have been pleasantly surprised with projects that's gone forward with funding. Some, we are still trying to figure out exactly where the funding traces back to, but nonetheless, projects have been sanctioned and gone forward. We've ended up in the last six months with three or four good sized projects, good sized meaning, the largest one being $25 million plus or minus, but still good projects for Powell, both in the US and in Canada. But when you are looking at overall public works projects, surprisingly, there is some activity there, greater than what we might have expected six months ago. Is it on fire? No, but it is looking more optimistic, even in the public works area than what we would have estimated this time last year.

Thank you. Our next question is from the line of Tom Spiro with Spiro Capital. Please go ahead.

Tom Spiro, Spiro Capital. Good morning. Number one, nice bookings in the quarter. Generally speaking, how's pricing out there these days, and how are margins? Are you seeing much change?

Well, it is still competitive, but I think it is going to be improving, as there's more activity that we're looking at.

That's promising. That's quite promising. The bookings in the quarter, are they tending to be lots of small jobs, or a handful of larger ones? What's the makeup?

Small to the mid-range. No real mega projects at this point, although there are some scheduled to be bid probably in early 2013. Right now, they are just asking for budgetary estimates, so as far as firm quotes and orders, we are looking at six months out.

The pipeline of opportunities is remaining strong. There is clearly more sizable projects that are being planned by many of our clients. We are estimating as to when they'll be sanctioned.

Would you guess that your year-end backlog at the end of this fiscal will exceed end of last fiscal?

Absolutely.

That's certainly promising. Up in Canada, Tom, I may be misquoting you, but I think a quarter or two ago, you said you were hopeful, even expectant that by our fourth quarter, Canada might break into the black. What are your thoughts today?

I think that we could be profitable in the second half of the year, whether we are profitable overall for the year, I'm a little skeptical at this point, due to the losses in the first half of the year. So I'll always remain optimistic and we are pushing hard to improve the operation, and the people are really coming together up there; we're kind of proud of it.

That's great, and lastly, I see your CapEx is running a little higher than in past years. What's your budget for the year, and what are you spending the money on?

I'm having a good time. (laughter)

You can break the CapEx spending to date basically into three buckets. We've purchased two parcels of land that we have had opportunities to acquire, that we view as something that will benefit us in the future when it comes to expansion requirements. And the balance of it has been on improvements to our existing machinery equipment, as well as to some software upgrades to our business system. When you're looking at the year, I still think that you're looking at something in the $7 million to $8 million, maybe as much as $10 million in normal CapEx. Last year, as you recall, we ended up the year fairly light; some of that rolled over into the first of this year. So therefore, it will not surprise me if we end up on the high side of our $7 million to $8 million normal maintenance-type spent. Regarding what we need to do from a capacity standpoint with the backlog growth that we are seeing and backlog growth that we are continuing to anticipate over the next few quarters, that's one of the business issues that we're addressing as a management team trying to put forth the right plan.

Are you adding staff? Are you hiring?

Yes, if you look at the last six months, we are up probably somewhere between 200 and 250 employees. I would say we will be up that much again between now and the end of the year.

That's great. Many thanks, and Tom, glad you're back on your feet.

All right, buddy. Tom, nice talking to you.

Thank you. Our next question is from the line of Noelle Dilts with Stifel Nicolaus. Please go ahead.

Hi, good morning, and again, congratulations on a nice quarter. Could you just give us -- I think you talked about this a little bit, but in the past, you have discussed how there is some projects in your backlog that aren't -- that were a bit in more competitive conditions that maybe had a little bit lower embedded gross margins, and then some that you are very happy with. Can you talk about how that embedded margin in your backlog is changing, and the composition of your backlog in terms of those projects?

When you are looking at the overall mix in our backlogs today versus this time last year, it clearly is moving more to the oil and gas sector, which gives us opportunity from complex jobs that we have talked about in the past, which can benefit Powell. But then it's also skewed towards the international side, which would sometimes be more challenging to yield the same level of margins as a domestic project would. When you are looking at what we consider the very low margin jobs, from the end of last year to where we are today, a substantial amount of that has been driven through our revenue stream, but there are still some jobs that were booked as much as 18 months ago that have not fully been completed. We'll see some of that continue to impact our overall weighted average margins, probably through the balance of the year.

So if you had to say a percentage of your backlog that is composed of that lower margin mark, could you give us --

It's order of magnitudes, it's less than $100 million, so actually less than 5%.

Okay, and then can you give us a sense of what's going on on the Gulf Coast, if you are starting to see any pickup in offshore activity?

Clearly, we are seeing more activity in the Gulf Coast region. There are projects that are being sanctioned out there that we have worked on a budgetary standpoint, and then we actually have business in our backlog supporting projects that have been sanctioned not only in the offshore area in the Gulf of Mexico, but as well as other parts of the world. But activity is clearly picking up, and we anticipate that activities continue into 2013.

Thank you. Our next question is from the line of George Gaspar, private investor. Please go ahead.

Yes, good morning.

George, you still kicking? Good to hear from you, buddy.

(laughter) Trying hard. Good morning, and congratulations. Great quarter. Good morning, good morning to both of you. Nice to hear Tom as spry as he is. I have got a question just on -- looking at the order backlog that you've assimilated here in your ongoing activities in that backlog. Do you see anything different on an offshore platform, production platform, insulations that you're involved in getting more sophisticated, and allowing Powell to broaden any technology capabilities that weren't available to you before, which could open some new revenue avenues for you?

George, let me start with that and then I'll let Tom wrap-up. Clearly, we are seeing changes in the requirements and the specifications that are coming to us in the offshore area, particularly those in the US waters' Gulf of Mexico that first off, one -- Common characteristics around the world are becoming larger and larger, and that size, weight, dealing with complex projects is becoming more and more critical to whoever they select as their partner. From a technology standpoint, one of the trends that we are seeing, particularly in the Gulf of Mexico, is greater and greater emphasis on safety, both in the type of equipment that's being put on there, the monitoring capabilities of it, as well as just the construction requirements necessary to deploy projects into the Gulf of Mexico. So they are growing in size, and they are growing complexity, and safety is the override driving difference from this time two years ago.

And if the switchgear and so forth is a little more complex with having a lot of communication -- intercommunication between offshore and onshore, and on the rig -- on the platform itself. So it takes a little longer to get the engineering work completed, but that's about the only changes I see.

Okay, so basically, in your basic business, just the magnitude of the size implications growing, just requires more of the same switchgear, reduction gear, being able to move power around and offshore installation, and that opens the door for you.

Well, communications and monitoring capabilities have definitely grown significantly. That's an area that allows us to differentiate ourselves, as well.

Got you, interesting. One question on Canada, in talking pretty positively going forward, can you [dimension] what oil sands development means in importance to the overall situation for Powell? Or is it away from oil sands, or is there something special going on there that wasn't there before that gives you opportunity?

With the oil sands, it is probably more cyclical than most other areas, even when it relates to oil and gas investments. The last three or four years in the oil sands, the investments in that region have been very, very modest. We first went into Canada thinking that we would see the upturn probably 12 months before we actually have seen it, but today, we are experiencing it, and it is a phenomena that is hard to understand if you are not there and can experience it firsthand. The amount of that activity being planned, and being deployed on projects in the oil sands region is significant. One of the greatest challenges that Powell, as well as all other firms are having is basically finding the human resources necessary to manage these type projects. Clearly, it's going to be over the next two or three years, a major opportunity for growth for Powell.

We've also seen opportunities, as the oil sands expands, they're having to improve the utilities and distribution network. We've been successful on several transit projects there, as well, so it's not just the oil sands.

And mining is doing well in Western Canada, as well. The overall economy, particularly in Western Canada, is very robust, relative to most other parts of the world.

Thank you. Our next question is a follow-up question from the line of Fred Buonocore with Rodman & Renshaw. Please go ahead.

Yes, hi. I just wanted to go back on that theme, in terms of the non-oil and gas end markets starting to see a pickup, and your the comment you just made about the utility and transit also benefiting in Western Canada, that gives it some perspective. But can you give us a sense, for say, in the previous quarter, what percent of bookings were non-oil and gas-related, say versus a year ago? Or give us some sense of how the composition of backlog may have changed to non-oil and gas-related projects?

Fred, the way I would characterize it is that the activity from a bid perspective and the activity from some orders actually being placed in the -- is increasing. Is it becoming a material percentage of our backlog? Is it materially changing from this quarter, versus last quarter, versus this quarter a year ago? It is modest at this point in time, but encouraging.

Except for transit.

Except for transit, as Tom pointed out. We have been successful in some transit projects, we have picked up three or four here in the last six months, and again, most of them, $20 million or less, but still, that is a sizable part of our backlog, and an unexpected benefit that we hadn't planned on this time last year.

And are all of those in Canada, or are some of those in the US?

US and Canada. Basically, all of North America, but some are in the US, some are in Canada.

Sure, and then -- (multiple speakers) Go ahead.

I was going to say, basically, the Canadian are in the western half of the country. But again, where we have had a presence, and has our presence benefited each and every opportunity? Probably not. But clearly, it has benefited us on some.

Okay, and then to go back to Noelle's question on the shift in margin and backlog, and how you had been impacted by competitive pressures, say on projects booked a year or so ago. Has behavior from some of your larger, say, European competitors changed with respect to aggressive pricing or the way they're going after what would typically be considered small projects for them because they're not as busy? Are you noticing a change in that regard?

Well, let me just, first-off characterize, what you are referring to is behavior that we saw, maybe ten years ago by some of the foreign players in the domestic market. Throughout this last downturn, I would say the overall market, why it got competitive, everybody was in the business to make money, it was just how low are they willing to go, and how little are they willing to make? When you are seeing the overall business today, if you look at it by sector, I would say it's been fairly stable over the last six to nine months from a price level perspective. But clearly, as Tom mentioned earlier, there is optimism with the overall business and economy beginning to span that we are going to be able to generate some price appreciation over the next year. Our backlog today versus a year ago is probably modestly better because of some of the work that has now been shipped, as opposed to some of the most recent bookings. Does that help understand what's going on in the dynamics?

Yes, it does. Thank you.

Thank you. Our next question is a follow-up from the line of John Franzreb with Sidoti & Company. Please go ahead.

Yes, regarding your comments on the utility market, I think you kind of laid out that it's gradually improving, but could you give us some sense of what you think the market is going to look like over the coming years, as far as order bookings? Can you address that, please?

John, I am very hesitant to predict what any one market sector is going to do. I don't think -- this is, again now, speaking in my personal comments; I'll let Tom add his comments here in a second. Is that you're going to see a rapid expansion in utility spending. I think it's going to be more on a case-by-case basis of pent-up demand, as we've talked about. There are some projects that have been put on the sideline for so long, that they are just having to go forward with them to keep their business going. To say that we're going to see a broad economic investment cycle, going on within the utility sector in the next 12 to 13, next 12 to 18 months, I don't think it's going to happen.

I tend to agree with you, but we are seeing a lot of activity on the west coast from Colorado on.

But I don't think that I would be one to predict that we're going to see an industry-wide expansion in capital investments of any significant volume.

And just to stick with some of the numbers, how much cash did you finish with in the quarter?

At the end of the quarter, we had on the books, $128 million.

$128 million, got it. And Tom, regarding the CEO search, it's getting a little long on the tooth. What characteristic has been the most difficult to fill?

Oh, I've got to dance on that one. Finding somebody that really understands the customer base and understands the product. They just haven't found the right one yet; we are working hard at it. We are working hard at it.

Okay. Do you have a short list of candidates at this point or no?

Yes.

Okay, I'll let it go at that. Thank you, guys.

Thank you.

(Operator Instructions)

Our next question is a follow-up from the line of Brent Thielman with D.A. Davidson. Please go ahead.

Are your orders beginning to reflect some projects in the chemicals arena yet, or is that yet to really show up in the backlog?

Most of that is budgetary and planning work at this point in time, as opposed to any material impact on our backlog.

Any sense when we could start to see that?

I think there's a good chance that we might start seeing some of that becoming more material in 2013.

Okay, and then just secondly, on the offshore side, I know Brazil has been discussed as maybe a longer term prospect for that side of the business. Are you seeing any opportunities in that market yet?

There is nothing of any size that we have booked into our backlog regarding Brazil.

Still see that as an opportunity, though? Potentially --

Yes, yes. It may be an opportunity. We just haven't had any firm quotes at this point.

Again, I think that region is one that local content is one of the biggest obstacles that we have.

Thank you, there are no further questions at this time. I would now like to turn the call back over to Management for closing remarks.

All right, any employees that are listening in today, thank you for your efforts, guys. Keep up the good work. I thank all of you for joining us today. We look forward to talking to you in the next quarter, and we appreciate your interest in Powell. Have a good day.

Ladies and gentlemen, this concludes Powell Industries' second quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 1-303-590-3030 with the access code of 4532672. ACT would like to thank you for your participation. You may now disconnect.