Powell Industries Q3 2026 Earnings Call Transcript

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Provided by Quartr
August 4, 2026

Key Takeaways

  • Positive Sentiment: Record bookings and backlog: Powell secured $934 million of new orders in the fiscal third quarter, including a $400 million-plus data center project, lifting backlog to a record $2.4 billion and book-to-bill to 3.0x.
  • Positive Sentiment: Strong quarterly execution: Revenue rose 9% year over year to $312 million, gross margin reached 30.6%, and diluted EPS increased to $1.42 from $1.32, supported by favorable mix, productivity, and operating leverage.
  • Positive Sentiment: Management said demand remains robust across electric utilities, data centers, LNG, and other industrial markets, with approximately $1.3 billion of backlog expected to convert to revenue over the next 12 months and confidence in strong fiscal 2027 performance.
  • Neutral Sentiment: Powell is expanding manufacturing capacity by more than 20% by fiscal year-end and plans to add a roughly 300,000-square-foot leased facility, while also evaluating a $70 million-$100 million greenfield plant; management acknowledged potential labor constraints in 2027-2028 and some near-term SG&A pressure as facilities are ramped.
  • Positive Sentiment: Operating cash flow was $100 million, cash and short-term investments totaled $634 million, and the company had no debt, providing substantial financial flexibility for capacity investments and potential acquisitions.
AI Generated. May Contain Errors.
Earnings Conference Call
Powell Industries Q3 2026
00:00 / 00:00

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Operator

Welcome to the Powell Industries earnings conference call. At this time, all participants are in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Mr. Robert Winters, Investor Relations. Thank you. Please go ahead.

Robert Winters
Senior Managing Director and GM at Alpha IR

Thank you, operator. Good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2026 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. It will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until August 11th. 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 4th, 2026. Therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay, listening, or transcript reading.

Robert Winters
Senior Managing Director and GM at Alpha IR

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. 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, execution of business strategies. For more information, please refer to company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Thank you, Bobby. Good morning, everyone. Thank you for joining us today to review Powell's fiscal 2026 third quarter results. I will make a few comments. Then turn the call over to Mike for more financial commentary before we take your questions. Powell delivered a very strong third quarter, highlighted by a record for new orders in a single quarter, which in turn has elevated our backlog to over $2 billion for the first time in our 79-year history. Revenue grew 9% compared to the prior year. Our continued focus on productivity delivered a gross margin of 30.6%. Revenue growth in the quarter was once again driven by our commercial and other industrial and electric utility markets, with continued strong results in the oil and gas sector.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Each of our core end markets are exhibiting high levels of activity. The nature and scope of these projects are central to Powell's core competencies. The electric utility market remains very active, underwritten by structurally undersupplied power demand, while data center order activity for Powell has clearly inflected higher relative to just one year ago. Meanwhile, in our industrial end markets, the growing importance of U.S. LNG exports in the global energy landscape remains supportive of demand for the electrical infrastructure required across the natural gas supply chain. Overall, Powell was awarded a record $934 million of new orders in the third quarter, which is nearly three times higher than the prior year and nearly double the order total from last quarter.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Included in this order total is the previously announced mega data center order, which is in excess of $400 million for Phase 1 of a multi-phase behind the meter design of on-site generation assets. Powell was awarded $75 million for the electrical distribution equipment supporting a new petrochemical facility for the production of fertilizer, and we received an award of approximately $60 million for a new LNG liquefaction facility. Both of these projects are located along the U.S. Gulf Coast. Outside of these three mega awards, our order book in the quarter was comprised of more than $350 million of new awards balanced across the market verticals in which we compete and a testament to the volume and diversity of our order intake.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Our backlog is now nearly $2.4 billion, again, the highest in Powell's history. It is notable that we have booked over $1.8 billion of new awards over the past three quarters. The visibility provided by our backlog continues to extend as we are booking awards that we'll be executing deep into our fiscal 2028. The order book also remains balanced across the Powell footprint, which, combined with actions we are taking to create incremental capacity, will improve opportunities to further drive productivity across our facilities. Those actions include a lease that we entered into late last year, providing an incremental 30,000 sq ft of manufacturing capacity near our Ohio facility. Part of that agreement included the option to expand that lease, which we expect to execute in response to accelerating order activity.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

In April, we entered into a lease agreement for a facility near our Houston facilities that is providing another 50,000 sq ft of manufacturing capacity. We are now operating two satellite engineering offices around the Houston Metro area to add critical engineering talent to our world-class electrical and mechanical engineering and design teams. These facilities are strategically located in the energy corridor and North Houston to expand our coverage of the metro area. Lastly, the expansion of our Jacintoport facility that we announced one year ago is nearing completion. This investment will add 335,000 sq ft of capacity to initially meet the accelerating demand for custom Power Control Rooms for the LNG market. However, over the long term, this capacity is fungible and can be utilized to serve our customers across any of our markets.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

We expect the work at Jacintoport to be completed in the next month or two and for utilization to ramp fairly quickly. When fully utilized, we would expect the expanded yard to support well in excess of $100 million of incremental annualized revenue. Each of the incremental initiatives that we have taken across the company over the last 12 to 18 months will result in an expansion of our total footprint of manufacturing office and warehouse facilities of over 20% by the end of fiscal 2026 as compared to the end of our fiscal 2025. During our third quarter, the board has authorized the acquisition of a lease facility that will support approximately 300,000 sq ft of manufacturing space. Over the last several quarters, our manufacturing and service leadership teams have progressed several options in proximity to our existing facilities.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

We are planning to have this future facility available for manufacturing activity late in our second or early third quarter of our fiscal 2027. The facility will be supported by increased fabrication throughput as part of a previously announced $8 million investment in new equipment and upgrades at our Moseley facility. We continue to evaluate the prospect of a greenfield Powell-owned facility that would require $70 million-$100 million of capital and provide upwards of an owned 250,000-300,000 sq ft factory, which would also support increased fabrication. This planning process continues to progress, and we expect to make a decision in the near future. Our M&A pipeline also remains healthy and growing, and we are evaluating a number of opportunities to better position us within key growth markets. These include complementary products and/or capabilities to our current portfolio or oriented toward building out our growing services franchise.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Our efforts here are tempered in part by what we regard as rich valuations across the space, though we continue to engage where we see value and a strategic fit. In closing, we are very pleased with our third quarter results. Commercial activity in our core end markets remains strong, underpinned by durable and secular demand drivers that should continue our momentum as we close fiscal 2026 and prepare for our fiscal 2027. With that, I'll turn the call over to Mike to walk us through our financial results in greater detail.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Thank you, Brett, and good morning, everyone. In the third quarter of fiscal 2026, we reported total revenue of $312 million, compared to $286 million, or 9% higher versus the same period in fiscal 2025. New orders booked in the third fiscal quarter of 2026 reached a record high of $934 million, which was anchored by the $400 million-plus data center order that was awarded in April and discussed in our prior quarter release, as well as two additional core industrial mega orders booked during the third fiscal quarter, one for an LNG project for roughly $60 million and the second for a petrochemical project totaling about $75 million. These wins, orders in the third fiscal quarter were higher by $572 million versus the same period in the prior year and higher sequentially by $445 million.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

The resulting book-to-bill ratio for the third fiscal quarter is 3.0x, while this ratio on a fiscal year to date basis is 2.2x, with reported backlog reaching a new high of $2.4 billion at the end of the third fiscal quarter, $967 million higher versus one year ago and $619 million higher sequentially. At the close of our third fiscal quarter, our core industrial end markets across petrochemical and oil and gas represent 30% of the total backlog, while the electric utility and commercial and other industrial markets each represent 24% and 40% of the $2.4 billion of backlog, respectively. Turning to revenue. Compared to the third quarter of fiscal 2025, domestic revenues were higher by $26 million, or 12%, while international revenues were slightly lower by $1 million to $61 million on the softer Canadian market.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

From a market sector perspective, revenues were higher by $27 million, or 54%, in the commercial and other industrial market versus the third quarter of fiscal 2025. While the electric utility market increased by $14 million, or 18%, versus the prior year. Across our core industrial end markets, the oil and gas sector was relatively flat versus the prior year, while the petrochemical market was lower by 49%. The light rail traction power sector was 7% lower versus the same period one year ago on light volume levels relative to the total business. Gross profit increased by $7 million to $95 million in the third fiscal quarter of 2026 versus the same period one year ago. Gross profit as a percentage of revenue was roughly flat versus the same period one year ago at 30.6% of revenue and was 90 basis points higher sequentially.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Versus the same period one year ago, the mix of projects and the associated margin rates exiting backlog remain very consistent and are continuing to benefit from strong execution and volume leverage across Powell's global footprint. Selling, general, and administrative expenses were $27 million in the current period, an increase of $1.6 million compared with the same period a year ago, primarily driven by the higher compensation expenses across the business, which is inclusive of the current year impact of the Remsdaq acquisition. SG&A as a percentage of revenue was lower by 20 basis points year-over-year to 8.6% in the current fiscal quarter and lower sequentially by 10 basis points. In the third quarter of fiscal 2026, we reported net income of $52.2 million, generating $1.42 per diluted share, compared to net income of $48.2 million or $1.32 per diluted share in the third quarter of fiscal 2025.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

During the third quarter of fiscal 2026, we generated $100 million of operating cash flow, principally driven by higher earnings generated in the third fiscal quarter, while also benefiting from favorable working capital resulting from the strong booking activity. Investments in property, plant, and equipment in the fiscal third quarter totaled $6.5 million, reflecting an uptick in capital deployed for the offshore fabrication yard expansion project, but also strategic spending for CapEx to accommodate the increased throughput resulting from commercial activity. At June 30th, 2026, we had cash equivalents, and short-term investments of $634 million, compared to $476 million at September 30th, 2025, and $545 million at March 31st, 2026. The company does not hold any debt. Looking forward, we remain encouraged by the sustained commercial activity across our core end markets, as highlighted by record bookings in the third quarter and a record backlog at quarter end.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

The continued momentum we are seeing in the electric utility and data center markets, coupled with early signs of a recovery in the petrochemical market, reinforces our confidence in the quality and the durability of future demand. These achievements reflect both the strength of customer investment and our ability to secure and execute large strategic projects, providing meaningful momentum as we enter fiscal 2027. Considering this backdrop, together with a stable pricing environment, disciplined project execution, and a strong liquidity position, we believe that Powell is well-positioned to deliver another year of strong financial performance in fiscal 2027. At this point, we'll be happy to answer your questions.

Operator

We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from John Franzreb with Sidoti & Company. Please go ahead.

John Franzreb
John Franzreb
Senior Equity Analyst at Sidoti & Company

Good morning, guys. Thanks for taking the questions. I'd really like to start with the gross margin profile. It continues to be elevated and impressive. I'm curious if you could talk a little bit about what the competitive landscape is like and what kind of ability you have maybe to be more aggressive on pricing given this incredible demand that you have.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Hey, John. Morning. It's Brett. Let me take the second part first, and I'll have Mike jump in on some of the color on the margin. We are seeing some opportunity for price in the market. On the commercial side, I think you'll find a theme that deliveries speed is still driving the overall value prop to the market. I wouldn't say that's across all the sectors we're in Powell. The industrial market, probably a little bit more price sensitive. Overall, margins are good and equivalent, but more opportunity on the commercial market, I'd say, of the three verticals that we chase. I'd say the competition follows the same sort of theme.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

A little bit more sensitive in the industrial market, and less so, not competitive in the commercial market, but it is about speed and capacity and what you can do to serve that market as quick as you can.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Hi. Good morning, John. I'll jump in to add some commentary there on the margins. Overall, we're really pleased about the margin performance in the quarter. Some of the core pillars driving margins in the quarter, the product mix across the business, continued operating leverage across our footprint. As Brett said, the pricing stability in the markets continue to meet our expectations. Combined, we were just over 30% GP for the quarter on a year-to-date basis, just shy of that, 29.6. We are watching inflation closely. We are seeing moderate inflation on core commodities, copper, aluminum, steel, things of that nature, engineered components. We've got some actions in place, whether it's commodity hedging, strong commercial discipline practices that are helping offset some of this. We are seeing a little bit of a headwind from a inflation perspective. Finally, project closeouts.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

With respect to project closeouts on a year-to-date basis, project closeouts have contributed roughly 100 basis points through the first nine months. That compares to about 130 basis points a year ago on a year-to-date basis. We are still seeing strong project execution through the system and across the footprint.

John Franzreb
John Franzreb
Senior Equity Analyst at Sidoti & Company

Got it. It's great to see you leaning into capacity expansion. I'm actually curious, maybe you can provide a little color if you decide to do a new greenfield facility, what's going into that thought process? Maybe talk a little bit about what you're seeing on available labor as you expand the capacity.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah. We talked last quarter about the capacity piece. During the last board, we had a really thorough discussion with the board, so pleased to be working towards the lease facility. With the growth of the backlog, certainly accelerating over the last two, three quarters, more efficient to do the lease facility. We are going to spend some capital doing some cranes and things that we'll leave there over the term of the lease. We feel pretty good that we can support that with throughput of our existing fabrication. That was one of the discussions that we're having, sort of in the prepared comments, the efficient use of capital in the lease.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

As we bring products still out of the R&D pipeline, supporting our organic strategy, depending on what we do M&A-wise, we do see a future need for increased power fabrication, and that will drive the own facility. Near term, we're going to pivot to the lease to handle the backlog growth and grow the company that way. We'll time the own facility to handle the methodic growth of the expanded pipeline for all of our verticals. On the labor side, again, consistent with my comments in prior quarters, John, I wouldn't tell you there's not a day goes by there's not something we're out looking at. It is interesting to watch our peers in the industry. There's a lot of construction labor being put to work right now. We've seen this cycle before. It's a little bit wider.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

We're really comfortable with what happens in the Gulf, from Louisiana around to South Texas down to Mexican border, when you get a lot of construction, what happens and how that pulls from across the contiguous states and even into Canada when it gets really busy. Now we're seeing other parts pull labor, North Texas up to the Midwest and even up to the northwest parts of the States. A little different dynamic on craft labor. It hasn't impacted us yet. I do think eventually it will be something we're going to have to deal with creatively. We don't see it in the next couple of quarters. Nothing immediate, but our radar is up, and I do believe it'll be a challenge into 2027, 2028.

John Franzreb
John Franzreb
Senior Equity Analyst at Sidoti & Company

Hmm. Makes sense. Thanks, Brett. I'll get back in the queue.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

All right, John.

Operator

The next question comes from Tomo Sano with JPMorgan. Please go ahead.

Tomo Sano
Tomo Sano
Analyst at JPMorgan

Hi. Good morning, everyone.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Hey, Tomo.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Good morning, Tomo.

Tomo Sano
Tomo Sano
Analyst at JPMorgan

Thank you for taking my questions. If you could talk about the modest revenue shortfall versus street expectations, could you help us understand the drivers? Was it primarily segment mix coming from Canadian market you talk about, or petrochemical softness versus timing and backlog conversions? Any color on which factors matters most would be helpful. Thank you.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Hi, good morning, Tomo. This is Mike. I'll address that question. First of all, being a project-based business, there's some variability with the ins and outs in the quarter and the timing of some of the big components that are going into our projects.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Nothing specific to call out at all on the revenue cadence. It was a 9% V versus the prior year, which we felt pretty comfortable with. As we build the backlog, that's probably a good barometer to kind of pinpoint. We're not going to see double-digit Vs probably given the backlog conversion rate that we've seen over the last, call it trailing 12 months or year to date anyway. Nothing specific to call out. It's going to be lumpy as we go forward. This quarter was really no exception. As I said, we were very happy with a 9% V overall for the quarter.

Tomo Sano
Tomo Sano
Analyst at JPMorgan

Thank you. Appreciate it. A follow-up on orders and demand trends. Could you share more color, like what are you seeing on the demand side by three verticals going forward? Thank you.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah. I'll take that one, Tomo. It's Brett. All three verticals heading into today, very active. We watch it very close every week. I dig into the color of our database to see what the activity is going forward and looking for any signs of a major concern, in terms of commercial and other, which includes the data center market, next couple of quarters, there's plenty of activity. The LNG market remains very robust for us. Feel very good about the investment we're making in offshore. Again, feel good about the timing of that yard coming online here in the next month or so. We'll get some revenue laid down there on a POC basis pretty quick. Utility market, again, very robust, especially in the U.S. A little less so in Canada.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

A little softer there generally and as compared to the U.S., we're able to use some of that capacity to help support some of the ongoing work here in the U.S. and bring it across the border. Feel pretty good heading through the back half of the calendar year and into calendar 2027, where we sit today.

Tomo Sano
Tomo Sano
Analyst at JPMorgan

Thank you. I appreciate it, Brett and Mike.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Thanks, Tomo.

Tomo Sano
Tomo Sano
Analyst at JPMorgan

Okay.

Operator

The next question comes from Manish Somaiya with Cantor. Please go ahead.

Manish Somaiya
Manish Somaiya
Analyst at Cantor

Good morning, Mike and Brett.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Morning.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Morning.

Manish Somaiya
Manish Somaiya
Analyst at Cantor

A couple of questions. One, maybe for both of you. Have margins peaked?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Following up from John's comment, I wouldn't say they peaked. The opportunity to grow would be continued opportunity in the commercial, and data center, and speed, and as long as we continue to serve that. That blends into the existing backlog, Manish. At Powell, the convertibility takes one to three years, so you got to kind of phase that in on the model. The other opportunity that is the other parts of the strategy, which we continue to work pretty hard with the automation and traction we make in the service strategy. Both of those strategic pillars are accretive to our current gross margin levels, and there's a lot of activity as well in those strategies across the markets we serve. That will continue to blend in higher and help us raise margins.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

As Mike noted earlier, we are a chunky business when it comes to reporting out. It could be a little chunky quarter to quarter, but overall, I think there's still positivity over the long term in our margin profile.

Manish Somaiya
Manish Somaiya
Analyst at Cantor

Secondly, there's been a lot of discussions about capacity coming online in the industry. Obviously, it doesn't pertain to each and every part of the business you might be participating in, just more broadly, Brett, how do you think about the capacity that's coming online pertaining to your specific business? At this juncture, clearly it seems that demand is outstripping supply, at some point it may catch up, and I guess there's been a lot of debate recently about how that might potentially impact margins for all the companies, including yourselves. Maybe if you can help us understand from a big picture standpoint and how it might be potentially different for you.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Well, I love the question. This is a good chat that we have at the board and how we're driving our strategy forward. I think it's safe to say Mike and I are building a strategy that is 10, 15, 20 years out in time. I think there are parts of what we're doing today that are optimistic, maybe slightly moving into the strategy side of things with the commercial and other. The rate of this market at some point will attenuate. What we're doing with even on the lease facility, we want to pivot that to the commercially owned facility, but it's supportive of good organic and M&A adds to the business for portfolio filling, how are we going to attack the utility market long term, taking the long-term look at those markets on distribution, transmission, themes like urbanization.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yes, there's the short-term things that are going on in the market. We're certainly aware of that and watching that, and we understand the risks. We're really driving the business long term. We make the investment in the fixed asset to add a factory, whether it be here in the Houston area or other states that we're looking at. It will be supported by a long-term strategy against primarily utility and the industrial market. I'm not discounting our long-term play in the commercial and other, but we're allocating small amount of capital to that. It's increased a little bit over the last couple of years on the strategy side around products and services. The bulk of our investments are still built around industrial and utility, and that's really where we gain the confidence to make that fixed asset investment on behalf of our investors.

Manish Somaiya
Manish Somaiya
Analyst at Cantor

Just on the backlog, Brett, obviously, very impressive backlog. Perhaps if you can just talk about how we should think about the backlog burn over the next 12, 18 months. Mike, just on that, it would be helpful to have the next 12 months backlog number, if you might have it.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah. Given the numbers, it's kind of math now, Manish. We had a really strong quarter. Activity looks robust going out. Mike will jump in here on convertibility. It has attenuated a little bit. The overall market is still, as I noted, one to three years, but if you just look at the slug that just came in I think as a team sport across Powell, really pleased with how well our teams operationally are working together to continue to maximize and find opportunity to drive productivity, to find increased capacity, to help serve and break up projects at different facilities and work with our clients to meet the need on the delivery. That's been a real positive. On the math side, Mike, what's the-

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Good morning, Manish. Of the $2.4 billion of backlog, roughly $1.3 billion, just under $1.3 billion, will be convertible over the next 12 months, so roughly 54%. As we spoke last quarter, that was in the low 60s with this big slug of orders, the $900+ million order bookings that we recognized this quarter, that went down to about 54%. On the book and burn cadence, that's still a very healthy burn. We're seeing about, on average, it's going to vary from quarter to quarter, but on average, it's about $75 million a quarter of book and bill.

Manish Somaiya
Manish Somaiya
Analyst at Cantor

Okay, great. Thank you so much.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Okay.

Operator

Next question comes from Alex Rygiel with Texas Capital. Please go ahead.

Alex Rygiel
Alex Rygiel
Analyst at Texas Capital

Thank you, very nice quarter. Could you more specifically talk to the $400 million data center project, what that revenue recognition cadence looks like over the next few quarters, and what the future phases of work could look like on this project?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Hey, Alex. Good morning. It's Brett. Thanks for joining today. The project came in pretty quick from its initial arrival to Powell to closing the award. The burn rate from inception isn't really too dissimilar from any of our other large projects, the other jobs we take around $100 million, $120 million, $150 million. It's roughly a two and a half year burn. It is a job that we broke up into multiple factories. It's touching at least five facilities here in North America. We worked with the client on the approach, so they're fully transparent on how we're addressing the job. It is going to have some interesting dynamics that we're anxious to put through the system relative to not a lot of design work. We're anxious to see how it goes through the system on a product side from a flow standpoint.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

It is a behind-the-meter generation asset. There are multiple phases in the future. We're excited. We believe the future phases will be a copy to the job that we just took, assuming we're successful.

Alex Rygiel
Alex Rygiel
Analyst at Texas Capital

To follow up on that, with this customer or other similar customers, are you looking at other projects that are maybe in your bid pipeline of this size for this exact same type of product?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

This is a pretty big one. If you look at the $100 million-$200 million or maybe just sub $100 million kind of area on the commercial side, there are clearly more of those that have amped up what we qualify as a mega project. A lot of that is being driven by, or a fair amount of that one is being driven by the commercial. There's still a fair amount of LNG work out there that we're very comfortable with as well. Yes, the commercial markets are bringing what we call mega jobs over $100 million in a little bit more frequent. Upwards of $400 million, there's not a lot in the pipeline that's that large other than the future phases of this. There is potential for that. Nothing in the near term.

Alex Rygiel
Alex Rygiel
Analyst at Texas Capital

Very helpful. Could you touch upon the Remsdaq acquisition, how that's performing?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah. The Remsdaq, I go back to what I said when we actually talked about this job and some of the data center jobs. We've always planned to bring the Remsdaq product portfolio in the U.S. utility market and the Canadian utility market for that matter. Having Remsdaq on board, we were very fortunate on timing, that when the data center market started looking for some of the products that we have that required some automation to do some creative power switching, if you will, in the design of the facility, we would have typically gone back out to the market and bought those boxes, those automation boxes from some other companies. We're able to use our own box now. We have been doing that really since the end of last calendar year, so beginning of our first fiscal quarter of 2026.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

We've been bringing their product into the States, into the commercial market, largely. Really well-timed there. Just the core operation of Remsdaq, very pleased with the progression. One of the things that attracted us to the Remsdaq was, A, the box, but B, their roadmap for technology. We've now done a good job of integrating their team and our team together, understood really all the particulars on the roadmap. We anticipate that the next generation of the controller that attracted us will be out in the market in the next couple of quarters. We're pretty excited.

Alex Rygiel
Alex Rygiel
Analyst at Texas Capital

Great. Nice quarter.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Thank you.

Operator

The next question comes from Chip Moore with ROTH MKM. Please go ahead.

Chip Moore
Analyst at ROTH MKM

Hey, Brett and Mike, thanks for taking the question. I guess for me, I think in data center today, there was some news around optical equipment and some communications equipment getting sort of clamped down from China. Not that extends to switchgear, but just curious your thoughts on some of the domestic opportunities for Powell, whether it's defense centric or public power. What are you seeing there, and how do you like that opportunity?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah, I'll have to look for that update. As I think you know, Chip, pretty well, we don't really have a tie to the Asian supply side of things, not because the company has ever been anti that part of supply, it's just not something we've done. We do sit in a unique position in that our content, as we manufacture, has really little tie to that. There is an element, we've talked on a couple calls in the past around defense spending. We are pursuing that, and we have a very good story to tell. I'd say that our opportunity funnel there is also growing. I can't report on results yet, but I do anticipate we'll get over the hump on that here in the next couple of quarters, and we'll have a really solid story to add into the color on future results.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

As that permeates and serves other secular markets such as utility or even the commercial side from a supply chain side and risk, I feel really strong that Powell's in a great position to serve that market with how we're set up on supply chain and manufacturing.

Chip Moore
Analyst at ROTH MKM

Great. Maybe for my follow-up, just an update around new products and maybe tie that into some of the potential capacity expansions that you might make. Any color there? Thanks.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Yeah, definitely R&D is trending up. Some of these newer projects, when you look at the portfolio of electrical kit that we provide to the market, require certain testing and certificates, and you've got to go to third-party labs. All of us do. Anybody in the electric business has to do this in the switchgear. We've had some increased R&D and a little, I don't want to call it's all for good because it's supporting these large orders, but we've had to take some of our resources and divert it to short-term need on the R&D side, where you have to go build samples to get a rating to either handle the heat or the short circuit around the switchgear.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

As we've grown the business, we've grown in these market verticals, we've had to pivot a little bit in the short term and spend some more R&D and divert some R&D resources to address those needs in our portfolio gap. We felt good when we took the job that we would meet the rating, but you've got to go and get the rating. That's a little bit of the R&D build that you've seen. On the organic R&D side, it pulls some of the resources away in the short term, but yet I do feel good that everything we're progressing will support that eventual new facility that we're going to own, and that'll be critical. Those two are very closely linked.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

We're not going to go invest in that facility, which will require an expanded fabrication support until those products are solid and ready to be released into the market. That's the timing we're working through right now.

Chip Moore
Analyst at ROTH MKM

Perfect. Thanks very much.

Operator

Once again, if you have a question, please press star, then one. The next question comes from Jon Braatz with Kansas City Capital. Please go ahead.

Jon Braatz
Analyst at Kansas City Capital

Morning, Brett. Good morning, Mike.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Good morning, Jon.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Morning, Jon.

Jon Braatz
Analyst at Kansas City Capital

Brett, sort of a data center question. We've seen some growing resistance publicly from consumers about data centers and moratoriums and so on. I think it's going to be incumbent upon data centers to improve the efficiency, reduce electrical consumption, and so on. I've been reading about 800 volt data centers and so on. I guess my question is, what role might Powell and its products have in improving the efficiency of data centers? Could we see an incremental benefit to Powell as data centers evolve? Could we see more Powell content, possibly?

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Possibly. On the utility connection, whether you're connecting on a grid load, utility scale, or you're going off the meter. Let's look at those two cases. If you're connected to the utility Excuse me. Both of those are around the 38kV, we're stepping in the 38 kV, very strong market for Powell. When you talk about behind the meter, like this large one that we took, that will, kind of to Alex's question earlier, Jon, that actually does drive up our content because that is more like a power island, we would call it, more like an offshore oil and gas platform where they're self-generating, and they're not able to run a cable from shore several hundred miles into the sea. That actually does increase the content for Powell from a Switchgear, switches, control, and services total package.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

It actually increases our addressable spend on the outside the data center. To date, we really aren't in the inside the data center. The 800 volt design, it is going to happen. I continue to, like a lot of people on the call today and in the market, watch the different progression of the technology. We certainly have our fingers into what's going on there. We are contemplating things that may pivot us into that area as much as it might stay AC gear or DC gear to support either design or a mix of the designs.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

At the compute level, where we don't compete, the one megawatt rack is definitely on its way, and it is built around DC distribution technology. As that moves up the power curve, the outside of the data center will remain largely AC energy. There's a mix of ideas to do DC, I mean, a really wide-ranging mix of DC stuff that will get inside the data center. Yeah, I still see an opportunity for Powell more midterm on the DC side. We definitely are looking at it.

Jon Braatz
Analyst at Kansas City Capital

Okay. All right. Thank you. Mike, as we think about the expansion plans over the next couple of years, would you think that there would have to be some lift to your SG&A spend to meet those expansion plans?

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Good morning, Jon. I do think there will be some pressure on SG&A as we stand up these new facilities. You can't switch them on immediately, so there's a transitional period while you stand them up and get them ready for production. We're doing all that we can to offset any impact to the business from both, whether it's a gross profit percentage or a SG&A percentage, the cost of the business, we're doing everything we can to mitigate any impact that we see. I think as we go forward on some of the larger initiatives, as Brett mentioned, the large facility that we're preparing to get under lease, there will be a transitional period there where we're standing it up and we're spending money and so forth to actually productive.

Jon Braatz
Analyst at Kansas City Capital

Okay. Thank you, Mike.

Mike Metcalf
Mike Metcalf
CFO at Powell Industries

Okay.

Operator

This concludes the question and answer session. I would like to turn the conference back over to Brett Cope, CEO, for any closing remarks. Please go ahead.

Brett Cope
Brett Cope
Chairman and CEO at Powell Industries

Thank you, Asia. Thank you everyone for joining us on the call this morning. We are very pleased with the results of our third fiscal quarter. We are encouraged by the commercial activity across each of our core end markets. We believe the momentum that our team has built throughout the year will continue into our fiscal 2027. I would like to thank our incredible employees, through their talent, leadership, and focus, have prepared Powell well for this growth cycle in our business. Thank you to our valued customers and our supplier partners for their continued trust and support of Powell. Mike and I look forward to talking with you all next quarter.

Operator

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

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    • Alex Rygiel
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    • Chip Moore
      Analyst at ROTH MKM
    • Jon Braatz
      Analyst at Kansas City Capital
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