Powell Industries Inc (POWL) 2017 Q1 法說會逐字稿

Greetings. Welcome to the Powell Industries conference call. At this time all participants are in a listen-only mode. (Operator Instructions). I'd like to turn the conference over to your host, Ms. Natalie Hairston. Thank you. You may begin.

Thank you, and good morning everyone. We appreciate you joining us to Powell Industries' conference call today to review fiscal year 2017 first quarter results. We would also like to welcome our internet participants listening in the call live over the web.

Before I turn the call over to management, I have the usual details to cover. If you didn't receive an email and news release issued yesterday and would like one, please call our offices at Dennard Lascar and we will get one to you. That number is 713-529-6600. Also, if you want to be on the email distribution release for Powell releases, please relay that information to us.

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 recorded replay will be available until February 15th. The information on how to access the replay was provided in yesterday's earnings release. Please know that information reported on this call speaks only as of today, February 8th, 2017, and therefore you're advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading.

As you know, this conference call includes certain statements, including statements related 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 strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission.

With me on the call are Brett Cope, Powell's Chief Executive Officer, and Don Madison, Chief Financial Officer. Now we'll turn the call over to Brett. Brett?

Thank you, Natalie, and good morning everyone. Thank you for joining us today to review our 2017 first quarter results. I will make a few comments and then I will turn the call over to Don for more financial commentary before we take your questions.

Over the past 60 days or so, since we shared our 2016 results and discussed our outlook for 2017, not much has changed. Powell's major challenge entering 2017 was our beginning backlog. As we discussed in December, our backlog had dropped below $300 million at the end of 2016 due to continued downward pressure on our business and uncertainties in our core markets of oil and gas, including petrochemicals. Our first quarter revenues of $110 million is a direct result of these headwinds.

Across the company, inquiry activity has remained steady relative to what we've experienced over the last several quarters. We do not see any short-term fundamental changes to market pricing or the timing of awards that would significantly impact our 2017 performance. However, during first quarter we did experience an increase in quoting activity in our aftermarket services and had some success in filling short-term production gaps.

From an operational perspective, our teams across Powell have continued to perform well and deliver solid operational performance relative to our backlog. Starting late in 2016, continuing through our first quarter of 2017, we utilized our people and systems to move projects between production facilities to quickly meet changing customer needs. This effort was successful in meeting customer schedules, and we believe this learning process will prove invaluable when the market returns. This will allow Powell to both quickly shift resources and projects to the facilities that best serve the customer and to better leverage our resources understand optimize our performance across the business.

I would also like to highlight our team in Canada for delivering strong first quarter operational results. The team executed efficiently on their backlog throughout last year, and have carried that momentum through the first quarter. Well done.

Across the company, we continue to adjust our spending as a proactive response to lingering market conditions. We will continue to invest in R&D, customer service, and other initiatives in order to expand our product lines and meet customer needs, and we remain focused on leveraging our internal initiatives to boost operational efficiency, reduce costs, and further improve cycle time.

Despite our challenges for 2017, I continue to believe that we are in a strong competitive position, with a great balance sheet and have significant opportunities to drive growth once capital spending in our key markets improve. With that, I'll turn the call over to Don.

Thank you, Brett. Revenues decreased by 26% or $40 million to $110 million in the first quarter of fiscal 2017 compared to the first quarter of 2016.

Here are some comparisons to the first quarter to fiscal 2016. Domestic revenues decreased by $20 million to $86 million, and international revenues also decreased by $20 million to $25 million. These decreases are the result of the decline in our project backlog.

Gross profit as a percentage of revenues decreased to 14% in the first quarter of fiscal 2017 compared to 15% in the first quarter fiscal 2016. Gross profit decreased by $8 million to $15 million. Our Canadian operations experienced an increase in gross profit which was offset by decline in gross profit from our domestic operations.

Selling and general administrative expenses decreased by 19%, or $4 million, to $16 million in the first quarter of fiscal 2017. However SG&A as a percentage of revenues increased slightly to 14% due to lower revenues.

We recorded the benefits for income taxes of $1.4 million in the first quarter. In the first quarter fiscal 2017, we've recorded a loss of $300,000 or $0.03 per share compared to a loss of $459,000, or $0.04 per share, in the first quarter of fiscal 2016. Excluding restructuring and separation costs, net income for the first quarter of first quarter 2016 was $2 million, or $0.18 per share.

New orders placed during the first quarter were $91 million, resulting in the backlog of $271 million, compared to a backlog of $291 million at the end of the fourth quarter, and $391 million a year ago. For the three months ended December 31, 2016, cash provided from operating activities was $3 million. Investments in property plant and equipment totaled $1 million. At December 31, 2016, we had cash and short-term investments of $95 million compared to $97 million at September 30, 2016. Long-term debt, including current maturities was $2 million.

Looking forward, we expect we will continue to be adversely affected by uncertain market conditions. Second quarter revenues are not likely to improve sequentially from our first quarter, and we continue to expect to report a net loss for fiscal 2017. At this point, we'll be happy to answer your questions.

Thank you. (Operator Instructions). Our first question comes from John Franzreb from Sidoti & Company. Please go ahead.

Good morning guys.

Morning John.

Morning John.

I guess I just wanted to start with the reference which you made to the pricing environment. Is it fair to say that things have stabilized? You've kind of indicated last quarter that it was tough getting [indiscernible] throughout the balance of fiscal 2016. Are your thoughts now that we've hit a stable environment, the pricing environment?

John, I think that's fair to say. I haven't seen further erosion. I haven't seen a lot of improvement, but I think it's fair to say in the first quarter of 2017 we haven't seen further erosion in the price in the market.

Okay, good. Regarding your R&D initiatives, can you kind of elaborate what type of projects you're working on end markets, adjacent products? Can you just kind of talk to what R&D dollars are being spent on?

Sure. Maybe three buckets I'd break it into. There's a wide range of things we're looking at. Key focus areas in the short term, anything that would improve the cost position of the product, or flow through the factory, to give us a better price in the market for existing products. We're looking at product extensions that will round out better competition in geographic markets. In our core markets, as far as expanding in other markets we may not be as strong in, some development, but not the majority of our R&D spend right now.

Can you give us an example where you've had hits expanding inside the markets in 2016 maybe?

In terms of where we've focused the R&D?

Correct.

I talked in past calls about there's a lot of buzz in the market around the Internet of Things, and how that might apply to the electrical industry. So we have been focused on I'll say automation, but the sensor side of getting the information out of the switchgear. So a lot of -- with the change in the demographics, the change in the industry, a lot of our customers, the way they manage their production assets is also changing. So there's a lot more clamor for the information, that leads into analytics, what you do with the information. We've had good very receptions on some of our new development on that front with our customers as we've rolled out new sensor technology that will give them a lot more information about how the asset is performing in the field, when to take action, what you need to do with the asset, and how to better manage the life of the asset. So we've received really good response in 2016 with what our development plans are there.

Okay. All right. Thanks for taking my questions. I'll get back in the queue.

Our next comes from Jon Tanwanteng from CJS Securities. Please go ahead.

Good morning, gentlemen. Thank you for taking my question.

Good morning, Jon.

Jon.

When would be the earliest you'd think you could see an inflection point in revenue or profitability, just given the environment we're in?

Jon, that is the most difficult question that we deal with each and every day as we look and try to plan the business. There is no strong indicators in the marketplace that we can point to that says that's when the market's going to turn. So you're really getting into a lot of just conjecture. At this point in time, I don't think that we can give you an accurate projection as to when that would be.

Okay. You mentioned the R&D side, but what about on the acquisition side? How should we think of how much cash you would use at some point if you found an attractive target, and would any sort of leverage be on the table at all?

We have leveraged the business in the past for acquisitions, but with our current cash balance, I don't think that would be likely that we would need to do so. But if the right opportunity were to come along, and it felt right from a strategic standpoint, the company has used leverage in the past to support acquisitions.

Okay, great. And then Brett, I think you mentioned filling in some of the schedule. Were you referring specifically to the second quarter or were you talking about the quarter you just posted?

In the first quarter, when we entered the year, we talked also about it in the last call, about this slide, not just in landing orders, but once we have the orders in house, it's been an initial headwind in planning our business. It provides production gaps when that happens. So to get the business to react in a long cycle market to fill those gaps is a challenge, but we did have some success filling that in the second quarter, and working on the third. So definitely in the first quarter we were pleased with some of the performance in some of our units that were able to do that, so --

Okay. Great. Thanks for the color. I appreciate it.

All right, Jon.

Thank you. This does conclude the question and answer session. I'd like to turn the floor back over to management for any closing comments.

Thank you, Matt. Despite the incremental improvements in market sentiment, we have not seen any sign of significant increases in our customer spending behavior. However, we have seen a slight increase in planning activity that may prove to benefit the company mid to late 2018. Until then, we believe the prudent approach is to prepare for more challenging times ahead. We will continue to align our operating costs with market conditions, and at the same time prepare for future opportunities.

We believe Powell's solid foundation, products, processes, and infrastructure will enable us to further improve upon our customer-focused model of providing a one-stop shop for products, systems, and service solutions. Most importantly, we're financially strong, which allows us to strategically manage our business through the cycle, just as we've done through cycles for the past 70 years.

Thanks again for your interest in Powell, and we look forward to speaking with you next quarter.

This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.