What changed in this filing

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Item 1. Business

2024-11-20 compared with 2023-12-06 · 62 added, 44 removed, 66 unchanged (62% of the section changed)

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We develop, design, manufacture and service custom-engineered equipment and systems that distribute, control and monitor the flow of electrical energy and provide protection to motors, transformers and other electrically powered equipment.

We are headquartered in Houston, Texas, and our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.;

Powell (UK) Limited;

Our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.;

Powell Canada, Inc.;

Powell (UK) Limited;

and Powell Industries International, B.V.

We are headquartered in Houston, Texas, and primarily serve the oil and gas and petrochemical markets, the electric utility market, and commercial and other industrial markets.

Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities.

We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels.

Our website is powellind.com .

We make available, free of charge on or through our website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).

We make available, free of charge on or through our website, electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Additionally, all of our reports filed with the SEC are available via their website at sec.gov .

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These products are designed for application voltages ranging from 480 volts to 38,000 volts.

We are headquartered in Houston, Texas and serve the oil and gas and petrochemical markets, which include onshore and offshore production, liquefied natural gas (LNG) facilities and terminals, pipelines, refineries and petrochemical plants.

Additional markets include electric utility, light rail traction power as well as mining and metals, pulp and paper, data centers and other municipal, commercial and industrial markets.

Our product scope includes designs tested to meet both United States (U.S.) and international standards, under both the American National Standards Institute (ANSI) and International Electrotechnical Commission (IEC).

We assist customers by providing field service inspection, installation, commissioning, modification, and repair services, as well as spare parts, retrofit and retrofill components for existing systems, and replacement circuit breakers for obsolete switchgear no longer produced by the original manufacturer.

We seek to establish long-term relationships with the end users of our systems as well as design and construction engineering firms contracted by those end users.

We believe that our exemplary culture of safety and focus on customer satisfaction, along with our financial strength, allow us to continue to capitalize on opportunities in the industries we serve.

We also provide spare parts, retrofit and retrofill components for existing systems, and replacement circuit breakers for obsolete switchgear no longer produced by the original manufacturer.

Our principal services include field service inspection, installation, commissioning, modification and repair services.

Products and services are principally sold directly to the end user or to an engineering, procurement and construction (EPC) firm on behalf of the end user.

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We market and sell our products and services, which are typically awarded in competitive bid situations, to a wide variety of customers and governmental agencies spanning diverse markets and geographic regions.

Contracts often represent large-scale and complex projects with an individual customer.

By their nature, these projects are typically non-recurring.

Thus, multiple and/or continuous projects of similar magnitude with the same customer are not predictable.

The timing of large project awards may cause material fluctuations in our revenues and gross profits.

Occasionally, our contracts may operate under a consortium or teaming arrangement.

Typically, we enter into these arrangements with reputable companies with whom we have previously conducted business.

These arrangements are generally made to leverage competitive positioning, or where scale and/or size dictates the use of such arrangement.

These arrangements are generally made to leverage competitive positioning, or where scale or size dictates the use of such arrangement.

We seek to establish long-term relationships with the end users of our systems as well as EPC firms contracted by those end users.

We believe that fostering a culture of safety and focusing on customer satisfaction, along with our strong balance sheet, allows us to capitalize on opportunities in the industries we serve.

Due to the nature and timing of large projects, a significant percentage of our revenues in a given period may result from one specific contract or customer.

We believe the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business.

Contracts often represent large-scale and complex projects with an individual customer.

By their nature, these projects are typically non-recurring.

Thus, multiple or continuous projects of similar magnitude with the same customer are not predictable.

The timing of large project awards may cause material fluctuations in our revenues and gross profits.

Additionally, the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business.

From time to time, an individual manufacturing facility may have significant volume from one particular customer that would be material to that facility.

If during that time the customer were to experience financial distress, a decline in business or circumstances that would otherwise necessitate a cancellation of a project with us, our revenue could be adversely impacted.

No single customer accounted for more than 10% of our consolidated revenues in Fiscal 2023.

Research and development activities are critical to Powell’s future and are focused on both the development of new products and services as well as enhancing current product offerings.

Our expertise in vacuum circuit breaker engineering is internationally recognized, and we are committed to incorporating continuous product improvements that will ensure sustained operational safety and reliability across the markets we serve.

We strive to be the supplier of choice for custom-engineered system solutions and services to a broad array of customers and markets.

Demand for our products and services is driven predominantly by the oil and gas, petrochemical and electric utility industries, but we also serve other commercial and industrial markets where customers need to manage, monitor and control large amounts of electrical energy through a complex network of electrical components and systems.

In both Fiscal 2024 and Fiscal 2023, no single customer accounted for more than 10% of our consolidated revenues.

Research, Development and Intellectual Property

Research and development activities are critical to Powell’s sustained growth and are focused on both the development of new products and applications and enhancement of our existing product offerings.

For example, Powell's expertise in vacuum circuit breaker engineering is internationally recognized, and leveraging this expertise in the development of new products will help us expand into a broader range of application spaces and industry sectors.

We are committed to continuous product improvement that will positively impact operational safety and reliability across the markets we serve.

From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection.

Additionally, we may acquire from time to time intellectual property to expand our product offering and application.

For example, in December 2023, we acquired intellectual property for a total consideration of $0.5 million.

Intellectual property not covered by patents (or patent applications) includes trade secrets and other technological know-how that is not patentable or for which we have elected not to seek patent protection, including intellectual property relating to our manufacturing processes and engineering designs.

Such unpatented technology, including research, development and engineering technical skills and know-how, as well as unpatented software, is important to our overall business and to the operations of our business.

While our intellectual property assets taken together are important, we do not believe our business would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement.

While we provide products and services to a wide range of markets where customers need to manage, monitor and control large amounts of electrical energy, demand for our products and services is driven predominantly by the oil and gas, petrochemical, electric utility, and commercial and other industrial markets.

The majority of our business is in support of capital investment projects that are highly complex and competitively bid.

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We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business.

In the oil, gas and petrochemical markets, we serve the upstream, midstream and downstream end markets.

Within the downstream market, our primary customers typically are engaged in refining activities and/or leveraging natural gas feedstocks for the production of petrochemical or LNG products.

The North American market is responding to increased international demand for LNG and gas-to-chemical processes utilizing low-cost gas feedstocks.

Strong relationships have developed with our customers over the years and we are recognized as a preferred service provider to solve our customers' complex electrical needs.

One element of our strategic focus is to strengthen our project portfolio beyond our core oil, gas and petrochemical markets.

Diversification efforts outside of our core oil, gas and petrochemical markets have resulted in an increase in backlog across the utility and commercial and other industrial markets.

We believe that our products and services, integration capabilities, technical and project management acumen, application engineering expertise and specialty contracting experience, together with our financial strength and responsiveness to the needs of our customers, give us a sustainable competitive advantage in our markets.

We strive to develop strong and lasting relationships with our customers and are recognized by many as a preferred service provider to solve our customers’ complex electrical distribution needs.

The following table presents our revenue for each market sector by percentage of total revenue for the years ended September 30, 2024, 2023 and 2022:

2024 2023 2022

Oil and gas (excluding petrochemical) 41% 39% 40%

Petrochemical 18% 13% 13%

Electric utility 19% 23% 23%

Commercial and other industrial 15% 15% 11%

Light rail traction power 2% 4% 8%

All others 5% 6% 5%

Total 100% 100% 100%

In the oil and gas markets, we serve the upstream, midstream and downstream end markets, including onshore and offshore production, liquefied natural gas (LNG) facilities and terminals, pipelines and refineries.

In addition to the traditional crude oil refining and other oil and gas downstream processes, we have recently expanded our end markets into hydrogen production, carbon capture, as well as alternative fuels, such as biofuels and sustainable aviation fuel, in response to the demand for clean energy.

Within the petrochemical market, our primary customers typically are engaged in leveraging hydrocarbon or natural gas feedstocks for the production of petrochemical, or oil- or gas-to-chemical products, including polyethylene, polypropylene, fertilizer, methanol, and related petrochemical applications.

In the electric utility market, we serve both the power generation and distribution end markets.

Increasing global electricity demand and the focus on reliable and safe electrical distribution are driving substantial investments in global infrastructure.

Aligned with our strategy of end-market diversification, we seek to continue our focus and growth in electrical distribution substations, while also addressing a resurgence of power generation investment in the market.

In the commercial and other industrial markets, our customers operate in commercial construction, data centers, metals and mining, pulp and paper, as well as other industrial applications.

Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities.

We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels.

We compete with a small number of multinational competitors that sell to a broad industrial and geographic market, as well as smaller, regional competitors that typically have limited capabilities and scope of supply.

Some of our competitors are significantly larger and have substantially greater global resources such as engineering, manufacturing and marketing.

Our principal competitors include ABB, Eaton, Schneider, and Siemens.

Our principal competitors include ABB, Eaton, Schneider, and Siemens Industries, Inc.

The competitive factors used during bid evaluation by our customers vary from project to project and may include technical support and application expertise, engineering and manufacturing capabilities, equipment rating, delivered value, scheduling and price.

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Our methodology for determining backlog may not be comparable to the methodology used by other companies.

Our backlog at September 30, 2023 totaled $1.3 billion compared to $592.2 million at September 30, 2022.

The increase in our backlog is across all of our end markets, and particularly driven by our core oil, gas and petrochemical markets.

We anticipate that approximately $648 million of Fiscal 2023 ending backlog will be fulfilled during our fiscal year ending September 30, 2024.

Our backlog at September 30, 2024 was $1.3 billion.

We anticipate that approximately $849 million of Fiscal 2024 ending backlog will be recognized as revenue during our fiscal year ending September 30, 2025.

Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers and may not be indicative of continuing revenue performance over future fiscal quarters.

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The equipment and materials that we use in our business are subject to availability and price fluctuations due to customer demand, producer capacity and market conditions.

Uncertainty and demand disruptions have, in the past, resulted in considerable volatility across commodity markets.

Uncertainty and fluctuating global demand have led to significant volatility across commodity markets.

We have experienced supply chain disruptions driven predominately by availability and cost volatility across our raw materials, engineered components and labor force.

As our procurement function seeks to address specific supply chain challenges, we continue working with our suppliers of key components and commodities to meet our customer commitments.

As our procurement function seeks to address specific supply chain challenges, we are working closely with our suppliers to meet our customer commitments.

While we have experienced, and may continue to experience, issues related to increased lead times for the purchase and delivery of key raw materials or components, we continue to monitor the availability (including transportation) and price of components and raw materials on a regular basis, as well as any potential impact on our operations.

Additionally, we have adjusted our product pricing with our customers in response to the increased cost environment which has made a positive impact on our gross margins in Fiscal 2023.

In response to the increased cost environment and supply chain challenges, we strive to effectively manage our product pricing, delivery schedules and bid validity dates with our customers, as well as improve factory efficiencies and project execution.

While the cost outlook for commodities used in the production of our products is not certain, we believe we can manage this volatility through contract pricing adjustments, with material-cost predictive estimating, hedging and by actively pursuing internal cost reduction efforts.

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Changes in our design to accommodate similar components from other suppliers could be implemented to resolve a supply problem related to a sole-sourced component.

Supply problems could result in delays in our ability to meet commitments to our customers and potentially result in delay damages assessed by our customers.

Supply problems could result in delays in our ability to meet commitments to our customers and potentially result in liquidated damages assessed by our customers.

We believe that sources of supply for raw materials and components are generally sufficient, and we do not believe a temporary shortage of materials will cause any significant adverse impact to our business and results of operations in the future.

Human Capital

At September 30, 2023, we had 2,363 full-time employees and 362 contract employees located primarily in the U.S., Canada and the United Kingdom (U.K.).

Our employees are not represented by unions, and we believe that our relationship with our employees is good.

At September 30, 2024, we had 2,748 full-time employees and 439 contract employees located primarily in the United States, Canada and the United Kingdom (U.K.).

Our employees are not represented by unions, and we maintain good relationships with our employees.

Periodically, we find it challenging to source qualified personnel in certain geographic areas due to increased construction or economic activity.

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Our top human capital priorities include the well-being, health and safety, and retention of our employees, as well as enhanced learning and leadership training opportunities, workplace safety, internal promotion and key employee retention.

Powell emphasizes a culture of safety that runs throughout the Company.

We establish annual goals and monthly operating metrics, which have resulted in a safety incident rate of 0.7 which is below the industry average, according to the U.S.

We emphasize a culture of safety that runs throughout the Company.

We establish annual goals and monthly operating metrics and, as a result, had a safety incident rate of 0.74 for Fiscal Year 2024, which is below the industry average, according to the U.S.

Bureau of Labor Statistics.

We believe that the nine-year average tenure of our employees is a reflection of our inclusive and supportive culture, and focused efforts on internal promotion, key employee retention and succession planning.

We believe that the eight-year average tenure of our employees is a reflection of our inclusive and supportive culture, focused efforts on internal promotion, key employee retention and succession planning.

Our annual Organizational Capabilities Review is focused on succession planning within our organization and is reviewed annually by our Board of Directors.

We measure our success based on the percentage of internal promotions to key positions and our ability to attract and retain key employees.

Intellectual Property

While we hold various patents, trademarks, servicemarks, copyrights and licenses, we do not consider any individual intellectual property to be material to our consolidated business operations.

Our operations are not generally affected by seasonality.

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These regulations cover diverse areas including environmental compliance, import and export controls, economic sanctions, data and privacy protection, transfer pricing rules, anti-bribery, anti-trafficking and anti-trust provisions.

Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies.

Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies, and are designed to promote and encourage ethical practices in our everyday operations.

We have established a multi-faceted compliance program that includes educating employees and leadership, performing risk-based due diligence and evaluating our supplier base.

We require legal and ethical practices in our everyday work.

We do not believe that compliance with governmental regulations will have a material impact on our capital expenditures, results of operations or competitive position.

We believe that the compliance cost associated with these governmental regulations will not have a material impact on our capital expenditures, results of operations or competitive position.

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What changed 10-K

Item 1. Business