What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-06 compared with 2025-05-07 · 78 added, 66 removed, 80 unchanged (64% of the section changed)

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

In the second quarter of Fiscal 2025, we reported revenues of $278.6 million, net income of $46.3 million, and generated $59.5 million in cash from operating activities.

As of March 31, 2025, we had total assets of $965.4 million.

Our backlog remained at $1.3 billion as of March 31, 2025, of which approximately $831 million is expected to be recognized as revenue within the next twelve months.

In the third quarter of Fiscal 2025, we reported revenues of $286.3 million, net income of $48.2 million, and generated $106.9 million in cash from operating activities.

As of June 30, 2025, we had total assets of $1.0 billion.

Our backlog increased to $1.4 billion as of June 30, 2025, of which approximately $913 million is expected to be recognized as revenue within the next twelve months.

Although current commercial activity remains active in most of the markets that we compete in, we remain attentive to the macro environment and geopolitical events that may have an impact on future market activity.

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natural gas market, through abundant supply and low cost, will continue to support investments in LNG, related gas processing, and petrochemical processes, and as a result, will continue to sustain our order activity associated with such markets, which is evidenced by two large, domestic LNG project awards during the first half of Fiscal 2025.

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.

Other oil and gas end markets are also experiencing increased commercial activity as we secured two large, offshore projects in our core oil and gas end markets during the third fiscal quarter.

In addition to the traditional crude oil refining and other oil and gas downstream processes, we have 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.

Electric utility market .

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 this market.

During the third fiscal quarter, we won a project for a new power generation plant, representing the largest electric utility award in the Company's history.

Commercial and other industrial markets.

As a result of a mix of factors we are experiencing strong growth in commercial facilities that provide for the production of various consumer goods and the expansion of data centers that support cloud computing and increasing investments in artificial intelligence.

We are also experiencing increased activity in other industrial markets such as pulp and paper, and mining which includes the large mining project for the production of potash in the second quarter of Fiscal 2025.

We are also experiencing increased activity in other industrial end markets which includes the large mining project that we secured in the first half of Fiscal 2025 for the production of potash.

Additionally, we booked an order for a domestic traction power project in the current quarter, representing the first large traction power project booked in several quarters.

Business Environment

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Our operating results are impacted by several factors such as the timing of new order awards, project backlog, changes in project cost estimates, customer approval of final engineering specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.

Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders and the resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.

Disruptions in the global supply chain have negatively impacted and may continue to negatively impact our business and operating results due to the limited supply of, delays for and uncertainty in the timing of the receipt of

key component parts and commodities.

Our operating results also have been,

and may continue to be, impacted by the timing and resolution of change orders and the resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.

We continue to remain focused on the variables that impact our markets as well as cost management, labor availability and supply chain challenges.

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Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings and operations in future periods.

During the second quarter of Fiscal 2025, we experienced an increase in volatility for commodity prices and ongoing supply chain delays for specific engineered components that remain a persistent challenge.

Moreover, recently announced changes and proposed changes to U.S.

global trade policy, along with potential international retaliatory measures, have caused high volatility in global markets and uncertainty around short- and long-term economic impacts in the United States and other markets we serve, including concerns over inflation, recession and slowing growth.

During the first nine months of Fiscal 2025, we experienced an increase in volatility for commodity prices and ongoing supply chain delays for specific engineered components that remain a persistent challenge.

Moreover, ongoing and recently proposed changes to U.S.

global trade policy, along with potential international retaliatory measures, have continued to cause high volatility in global markets and uncertainty around short- and long-term economic impacts in the United States and other markets we serve, including concerns over inflation, recession and slowing growth.

We continue to evaluate and monitor the potential impacts of these changes and measures, including the imposition of tariffs, on our business and operations.

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Additionally, we remain focused on enhancing factory efficiencies and improving project execution to mitigate risks and maintain customer satisfaction.

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the OBBBA), which includes a broad range of tax reform provisions affecting businesses.

The OBBBA extends and modifies certain key 2017 Tax Cuts & Jobs Act (TCJA) provisions (both domestic and international) and revamps some of the TCJA’s provisions on the taxation of corporations’ foreign income.

The OBBBA also expands certain Inflation Reduction Act incentives while accelerating the phase-out of others.

We are currently evaluating the impact of the OBBBA on our operations, financial results and liquidity.

Results of Operations

Quarter Ended March 31, 2025 Compared to the Quarter Ended March 31, 2024 (Unaudited)

Quarter Ended June 30, 2025 Compared to the Quarter Ended June 30, 2024 (Unaudited)

Revenue and Gross Profit

Revenues increased by 9%, or $23.5 million, to $278.6 million in the second quarter of Fiscal 2025, primarily driven by strong project backlog at the end of Fiscal 2024 and strong bookings that continued through the first half of Fiscal 2025.

Domestic revenues increased by 5%, or $10.9 million, to $227.8 million in the second quarter of Fiscal 2025.

International revenues increased by 33%, or $12.6 million, to $50.8 million in the second quarter of Fiscal 2025, primarily driven by increased project volume from our Canada operations and increased activity in the Middle East and Africa region.

Revenues decreased by 1%, or $1.9 million, to $286.3 million in the third quarter of Fiscal 2025.

Domestic revenues decreased by 8%, or $19.2 million, to $224.5 million in the third quarter of Fiscal 2025.

International revenues increased by 39%, or $17.3 million, to $61.7 million in the third quarter of Fiscal 2025, primarily driven by increased project volume from our Canada operations and increased activity in the Middle East and Africa region.

Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

In the second quarter of Fiscal 2025, revenue from our oil and gas market (excluding petrochemical) decreased by 3%, or $2.7 million, to $101.2 million;

petrochemical market revenue decreased by 13%, or $6.4 million, to $43.7 million;

revenue from our electric utility market increased by 48%, or $22.8 million, to $70.3 million;

In the third quarter of Fiscal 2025, revenue from our electric utility market increased by 31%, or $17.9 million, to $74.9 million;

commercial and other industrial market revenue increased by 18%, or $7.5 million, to $49.5 million;

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These increases in revenue were primarily driven by our strategic effort to expand our business into electric utility and commercial and other industrial markets and the improved market conditions in these end markets.

Revenue from all other markets combined decreased by 9%, or $1.3 million, to $13.0 million in the second quarter of Fiscal 2025 due to less project volume.

Gross profit increased by 33%, or $20.7 million, to $83.4 million for the second quarter of Fiscal 2025.

Gross profit as a percentage of revenues increased to 30% in the second quarter of Fiscal 2025, as compared to 25% in the second quarter of Fiscal 2024.

The increase in gross profit was primarily driven by higher revenues, favorable volume leverage, strong project execution, as well as benefit from project closeouts in the second quarter of Fiscal 2025.

Revenue from our oil and gas market (excluding petrochemical) decreased by 8%, or $8.9 million, to $105.5 million;

and revenue from our petrochemical market decreased by 36%, or $20.4 million, to $36.3 million in the third quarter of Fiscal 2025.

These decreases in revenue were primarily driven by project timing within the oil and gas market as well as the reduction in backlog within the petrochemical market as the business nears completion of the large petrochemical order secured in Fiscal 2023.

Revenue from all other markets combined decreased by 9%, or $1.2 million, to $11.5 million in the third quarter of Fiscal 2025 due to less project volume.

Gross profit increased by 8%, or $6.2 million, to $87.9 million for the third quarter of Fiscal 2025.

Gross profit as a percentage of revenues increased to 31% in the third quarter of Fiscal 2025, as compared to 28% in the third quarter of Fiscal 2024.

The increase in gross profit was primarily driven by favorable volume leverage, strong project execution, as well as the benefit from project closeouts in the third quarter of Fiscal 2025.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 4%, or $0.8 million, to $21.8 million in the second quarter of Fiscal 2025, primarily due to increased compensation expense.

Selling, general and administrative expenses as a percentage of revenues remained at 8% for both periods.

Selling, general and administrative expenses increased by 14%, or $3.1 million, to $25.1 million in the third quarter of Fiscal 2025, primarily due to increased compensation and acquisition related expense.

Selling, general and administrative expenses as a percentage of revenues increased to 9% during the third quarter of Fiscal 2025 compared to 8% during the third quarter of Fiscal 2024.

Income Tax Provision

We recorded an income tax provision of $16.1 million in the second quarter of Fiscal 2025, compared to an income tax provision of $10.4 million in the second quarter of Fiscal 2024.

The effective tax rate for the second quarter of Fiscal 2025 was 26%, compared to an effective tax rate of 24% for the second quarter of Fiscal 2024.

For each of the three months ended March 31, 2025 and 2024, the effective tax rate was favorably impacted by the estimated Research and Development (R&D) Tax Credit.

Additionally, for the second quarter of Fiscal 2024, we recognized a benefit for discrete items related to the vesting of restricted stock units (RSUs) and the release of a reserve for unrecognized tax benefits.

We recorded an income tax provision of $15.9 million in the third quarter of Fiscal 2025, compared to an income tax provision of $15.6 million in the third quarter of Fiscal 2024.

The effective tax rate for the third quarter of Fiscal 2025 and 2024 was 25%.

For each of the three months ended June 30, 2025 and 2024, the effective tax rate was favorably impacted by the estimated Research and Development (R&D) Tax Credit, which was offset by the tax expense related to certain nondeductible items.

Additionally, in the third quarter of Fiscal 2024, this benefit was offset by an income inclusion related to U.S.

global intangible income.

For further information regarding our income taxes, see Note J of the Notes to Condensed Consolidated Financial Statements.

In the second quarter of Fiscal 2025, we recorded net income of $46.3 million, or $3.81 per diluted share, compared to net income of $33.5 million, or $2.75 per diluted share, in the second quarter of Fiscal 2024.

The increase in net income was primarily driven by higher revenue and improved gross profit margin in the second quarter of Fiscal 2025.

In the third quarter of Fiscal 2025, we recorded net income of $48.2 million, or $3.96 per diluted share, compared to net income of $46.2 million, or $3.79 per diluted share, in the third quarter of Fiscal 2024.

The increase in net income was primarily driven by improved gross profit margin in the third quarter of Fiscal 2025.

The order backlog, which is our remaining unsatisfied performance obligations, represents the estimated transaction price for goods and services for which we have a material right, but work has not been performed.

The order backlog at March 31, 2025 was $1.3 billion, consistent with our backlog at December 31, 2024.

Bookings, net of cancellations and scope reductions, increased by 6% in the second quarter of Fiscal 2025 to $249.0 million, compared to $235.4 million in the second quarter of Fiscal 2024.

Six Months Ended March 31, 2025 Compared to the Six Months Ended March 31, 2024 (Unaudited)

The order backlog at June 30, 2025 was $1.4 billion, a 7% increase from our $1.3 billion backlog at March 31, 2025.

This increase was mainly driven by electric utility, oil and gas, and light rail traction power markets, partially offset by a decrease in the petrochemical market.

As of June 30, 2025, oil and gas (excluding petrochemical) market accounted for 36%, electric utility market accounted for 32%, and commercial and other industrial market accounted for 11% of our backlog.

Bookings, net of cancellations and scope reductions, increased by 2% in the third quarter of Fiscal 2025 to $362.1 million, compared to $356.3 million in the third quarter of Fiscal 2024.

Nine Months Ended June 30, 2025 Compared to the Nine Months Ended June 30, 2024 (Unaudited)

Revenue and Gross Profit

Revenues increased by 16%, or $70.9 million, to $520.1 million in the six months ended March 31, 2025, primarily driven by strong project backlog at the end of Fiscal 2024 and strong bookings that continued in the first half of Fiscal 2025.

Domestic revenues increased by 13%, or $48.8 million, to $425.6 million in the six months ended March 31, 2025.

International revenues increased by 31%, or $22.1 million, to $94.5 million in the six months ended March 31, 2025, primarily driven by increased project volume from our Canada operations.

Revenues increased by 9%, or $69.0 million, to $806.3 million in the nine months ended June 30, 2025, primarily driven by strong project backlog at the end of Fiscal 2024 and strong bookings that continued in the first nine months of Fiscal 2025.

Domestic revenues increased by 5%, or $29.6 million, to $650.1 million in the nine months ended June 30, 2025.

International revenues increased by 34%, or $39.4 million, to $156.2 million in the nine months ended June 30, 2025, primarily driven by increased project volume from our Canada operations and increased activity in the Middle East and Africa region.

Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.

In the six months ended March 31, 2025, revenue from our oil and gas market (excluding petrochemical) increased by 5%, or $9.4 million, to $196.8 million;

petrochemical market revenue decreased by 2%, or $1.6 million, to $76.9 million;

In the nine months ended June 30, 2025, revenue from our oil and gas market (excluding petrochemical) increased by $0.5 million, to $302.3 million;

revenue from our electric utility market increased by 35%, or $51.3 million, to $196.5 million;

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Revenue from all other markets combined decreased by 18%, or $4.8 million, to $21.8 million in the six months ended March 31, 2025 due to less project volume.

Gross profit increased by 29%, or $32.0 million, to $143.0 million for the six months ended March 31, 2025.

Gross profit as a percentage of revenues increased to 27% in the first half of Fiscal 2025, compared to 25% in the first half of Fiscal 2024.

The increase in gross profit was primarily driven by higher revenues in the first half of Fiscal 2025 and strong gross profit margin in the second quarter of Fiscal 2025 due to favorable volume leverage, strong project execution, as well as benefit from project closeouts in the quarter.

Revenue from our petrochemical market decreased by 16%, or $22.0 million, to $113.2 million with the reduction in backlog in this market and as the business nears completion of the large petrochemical order secured in Fiscal 2023.

Revenue from all other markets combined decreased by 15%, or $5.9 million, to $33.3 million in the nine months ended June 30, 2025 due to less project volume.

Gross profit increased by 20%, or $38.2 million, to $230.9 million for the nine months ended June 30, 2025.

Gross profit as a percentage of revenues increased to 29% in the first nine months of Fiscal 2025, compared to 26% in the first nine months of

The increase in gross profit was primarily driven by higher revenues in the first nine months of Fiscal 2025 and strong gross profit margin in Fiscal 2025 due to favorable volume leverage, strong project execution, as well as the benefit from project closeouts in the period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 5%, or $1.9 million, to $43.2 million in the six months ended March 31, 2025, primarily due to increased compensation expense.

Selling, general and administrative expenses as a percentage of revenues decreased to 8% during the first half of Fiscal 2025, compared to 9% during the first half of Fiscal 2024, resulting from higher revenues on our existing cost structure.

Selling, general and administrative expenses increased by 8%, or $5.0 million, to $68.4 million in the nine months ended June 30, 2025, primarily due to increased compensation and acquisition related expense.

Selling, general and administrative expenses as a percentage of revenues decreased to 8% during the first nine months of Fiscal 2025, compared to 9% during the first nine months of Fiscal 2024, resulting from higher revenues on our existing cost structure.

Income Tax Provision

We recorded an income tax provision of $20.8 million in the six months ended March 31, 2025, compared to an income tax provision of $16.2 million in the six months ended March 31, 2024.

The effective tax rate for the six months ended March 31, 2025 was 20%, compared to an effective tax rate of 22% for the six months ended March 31, 2024.

For each of the six months ended March 31, 2025 and 2024, the effective tax rate was favorably impacted by discrete items related to the vesting of RSUs and the estimated R&D Tax Credit.

Additionally, we recognized a benefit due to the release of a reserve for unrecognized tax benefits in the six months ended March 31, 2024.

The decreased effective tax rate for the first half of Fiscal 2025 was primarily driven by higher stock prices associated with the vested RSUs.

We recorded an income tax provision of $36.7 million in the nine months ended June 30, 2025, compared to an income tax provision of $31.8 million in the nine months ended June 30, 2024.

The effective tax rate for the nine months ended June 30, 2025 was 22%, compared to an effective tax rate of 23% for the nine months ended June 30, 2024.

For each of the nine months ended June 30, 2025 and 2024, the effective tax rate was favorably impacted by discrete items primarily related to the vesting of RSUs and the estimated R&D Tax Credit, which was offset by the tax expense related to certain nondeductible items.

For further information regarding our income taxes, see Note J of the Notes to Condensed Consolidated Financial Statements.

In the six months ended March 31, 2025, we recorded net income of $81.1 million, or $6.67 per diluted share, compared to net income of $57.6 million, or $4.73 per diluted share, in the six months ended March 31, 2024.

The increase in net income was primarily driven by higher revenue and improved gross profit margin in the first half of Fiscal 2025.

In the nine months ended June 30, 2025, we recorded net income of $129.3 million, or $10.63 per diluted share, compared to net income of $103.8 million, or $8.52 per diluted share, in the nine months ended June 30, 2024.

The increase in net income was primarily driven by higher revenue and improved gross profit margin in the first nine months of Fiscal 2025.

The order backlog at March 31, 2025 was $1.3 billion, consistent with our backlog at September 30, 2024.

Bookings, net of cancellations and scope reductions, increased by 20% during the six months ended March 31, 2025 to $517.6 million, compared to $433.0 million during the six months ended March 31, 2024.

The order backlog at June 30, 2025 was $1.4 billion, a 6% increase from our $1.3 billion backlog at September 30, 2024.

This increase was mainly driven by electric utility, and oil and gas markets, partially offset by a decrease in the petrochemical market.

Bookings, net of cancellations and scope reductions, increased by 11% during the nine months ended June 30, 2025 to $879.7 million, compared to $789.2 million during the nine months ended June 30, 2024.

This increase was primarily driven by improved bookings in oil and gas, electric utility and light rail traction power markets, partially offset by decreased net bookings in petrochemical and commercial and other industrial markets.

Liquidity and Capital Resources

As of March 31, 2025, current assets exceeded current liabilities by 2.0 times.

Cash, cash equivalents and short-term investments increased to $389.3 million at March 31, 2025, compared to $358.4 million at September 30, 2024.

As of June 30, 2025, current assets exceeded current liabilities by 2.1 times.

Cash, cash equivalents and short-term investments increased to $433.0 million at June 30, 2025, compared to $358.4 million at September 30, 2024.

The increase in cash, cash equivalents and short-term investments was primarily driven by our improved earnings due to higher gross profit, partially offset by capital spending, dividend payments, and cash payments related to shares withheld in lieu of employee tax withholding.

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credit facility, will be sufficient to support our future operating activities, working capital requirements, payment of dividends and capital spending, as well as research and development initiatives for the next twelve months and beyond.

Approximately $75.4 million of our cash, cash equivalents and short-term investments at March 31, 2025 was held outside of the U.S.

As we assess our capital allocation framework relative to our strategic objectives, we will continue to deploy capital to both organic and inorganic initiatives, as well as maintain a prudent approach to other methods that improve shareholder value.

Approximately $73.3 million of our cash, cash equivalents and short-term investments at June 30, 2025 was held outside of the U.S.

for our international operations.

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Revolver has an expiration date of October 4, 2028.

As of March 31, 2025, there were no amounts borrowed under the U.S.

As of June 30, 2025, there were no amounts borrowed under the U.S.

Revolver, and letters of credit outstanding were $76.0 million.

There was $74.0 million available for the issuance of letters of credit and borrowings under the U.S.

Revolver as of March 31, 2025.

Revolver as of June 30, 2025.

For further information regarding our debt, see Notes E and F of the Notes to Condensed Consolidated Financial Statements.

Operating Activities

Operating activities provided net cash of $59.5 million during the six months ended March 31, 2025, and provided net cash of $100.9 million during the same period in Fiscal 2024.

Operating activities provided net cash of $106.9 million during the nine months ended June 30, 2025, and provided net cash of $114.7 million during the same period in Fiscal 2024.

Cash flow from operations is primarily influenced by project volume and margins, as well as working capital requirements, the timing of milestone payments from our customers, and payment terms with our suppliers.

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Investing Activities

Investing activities provided $4.6 million of cash during the six months ended March 31, 2025 and used $11.2 million of cash during the same period in Fiscal 2024.

Cash provided by investing activities in the first half of Fiscal 2025 was primarily due to net maturities of short-term investments, partially offset by capital spending on the facility expansion and improvement project at our electrical products facility in Houston.

Investing activities used $4.2 million of cash during the nine months ended June 30, 2025 and used $13.0 million of cash during the same period in Fiscal 2024.

Cash used by investing activities in the first nine months of Fiscal 2025 was primarily due to capital spending on the facility expansion and improvement project at our electrical products facility in Houston, partially offset by net maturities of short-term investments.

In December 2023, we acquired intellectual property for a total consideration of $0.5 million, of which $250 thousand was paid in cash.

We have planned capital spending of approximately $11 million on a facility expansion and improvement project at our electrical products facility in Houston.

We recently completed the expansion and improvement project and the incremental capacity will be in service in the third quarter of Fiscal 2025.

The $11 million expansion and improvement project at our electrical products facility in Houston has been completed and the incremental capacity is now in service.

Financing Activities

Net cash used in financing activities was $18.4 million during the six months ended March 31, 2025 compared to $12.8 million used during the same period in Fiscal 2024.

The increase in cash used in financing activities was primarily due to cash payments related to shares withheld in lieu of employee tax withholding, largely driven by the significant increase in our share price in the first half of Fiscal 2025 compared to the same period of Fiscal 2024.

Net cash used in financing activities was $21.7 million during the nine months ended June 30, 2025 compared to $16.0 million used during the same period in Fiscal 2024.

The increase in cash used in financing activities was primarily due to cash payments related to shares withheld in lieu of employee tax withholding, largely driven by the significant increase in our share price in the first nine months of Fiscal 2025 compared to the same period of Fiscal 2024.

Critical Accounting Policies and Estimates

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Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our market risks as of and for the three and six months ended March 31, 2025, as compared to the information previously reported under Part II, Item 7A within our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

There have been no material changes to our market risks as of and for the three and nine months ended June 30, 2025, as compared to the information previously reported under Part II, Item 7A within our Annual Report on Form 10-K for the fiscal year ended September 30, 2024.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis