POWELL INDUSTRIES INC 10-Q

Item 1. Financial Statements POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Balance Sheets (Unaudited) (In thousands, except share and per share data) June 30, 2025 September 30, 2024 ASSETS Current Assets: Cash and cash equivalents $ 398,466 $ 315,331 Short-term investments 34,574 43,061 Accounts receivable, less allowance for credit losses of $ 269 and $ 414 , respectively 211,623 214,405 Contract assets 133,015 102,827 Inventories 88,534 85,873 Prepaid expenses 7,225 7,487 Other current assets 6,722 7,497 Total Current Assets 880,159 776,481 Property, plant and equipment, net 109,376 103,421 Operating lease assets, net 1,224 1,216 Goodwill and intangible assets, net 1,503 1,503 Deferred income tax assets 31,299 27,246 Other assets 18,655 18,313 Total Assets $ 1,042,216 $ 928,180 LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable $ 66,203 $ 73,633 Contract liabilities 299,512 287,763 Accrued compensation and benefits 28,439 33,777 Accrued product warranty 6,058 5,822 Current operating lease liabilities 610 595 Income taxes payable 6,451 8,983 Other current liabilities 20,072 17,442 Total Current Liabilities 427,345 428,015 Deferred compensation 13,384 12,027 Long-term operating lease liabilities 614 621 Deferred income tax liabilities 3,914 2,708 Other long-term liabilities 2,054 1,736 Total Liabilities 447,311 445,107 Commitments and Contingencies (Note F) Stockholders' Equity: Preferred stock, par value $ 0.01 ; 5,000,000 shares authorized; no ne issued — — Common stock, par value $ 0.01 ; 30,000,000 shares authorized; Shares issued: 12,874,566 and 12,795,256 , respectively Shares outstanding: 12,068,548 and 11,989,238 , respectively 129 128 Additional paid-in capital 62,086 70,111 Retained earnings 581,703 462,194 Treasury stock, 806,018 shares at cost ( 24,999 ) ( 24,999 ) Accumulated other comprehensive loss ( 24,014 ) ( 24,361 ) Total Stockholders' Equity 594,905 483,073 Total Liabilities and Stockholders' Equity $ 1,042,216 $ 928,180 The accompanying notes are an integral part of these condensed consolidated financial statements. 3 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Operations (Unaudited) (In thousands, except per share data) Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Revenues $ 286,273 $ 288,168 $ 806,335 $ 737,293 Cost of goods sold 198,374 206,428 575,480 544,639 Gross profit 87,899 81,740 230,855 192,654 Selling, general and administrative expenses 25,116 22,022 68,359 63,316 Research and development expenses 2,659 2,430 7,881 6,681 Operating income 60,124 57,288 154,615 122,657 Other expenses (income): Interest income, net ( 3,977 ) ( 4,508 ) ( 11,397 ) ( 12,934 ) Income before income taxes 64,101 61,796 166,012 135,591 Income tax provision 15,867 15,573 36,685 31,795 Net income $ 48,234 $ 46,223 $ 129,327 $ 103,796 Earnings per share: Basic $ 4.00 $ 3.85 $ 10.72 $ 8.67 Diluted $ 3.96 $ 3.79 $ 10.63 $ 8.52 Weighted average shares: Basic 12,071 11,998 12,059 11,977 Diluted 12,175 12,205 12,166 12,180 Dividends per share $ 0.2675 $ 0.2650 $ 0.8000 $ 0.7925 The accompanying notes are an integral part of these condensed consolidated financial statements. 4 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Comprehensive Income (Unaudited) (In thousands) Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Net income $ 48,234 $ 46,223 $ 129,327 $ 103,796 Foreign currency translation adjustments 7,479 ( 986 ) 347 ( 170 ) Comprehensive income $ 55,713 $ 45,237 $ 129,674 $ 103,626 The accompanying notes are an integral part of these condensed consolidated financial statements. 5 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands) Accumulated Additional Other Common Stock Paid-in Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Shares Amount Income/(Loss) Totals Balance, September 30, 2024 12,795 $ 128 $ 70,111 $ 462,194 ( 806 ) $ ( 24,999 ) $ ( 24,361 ) $ 483,073 Net income — — — 34,763 — — — 34,763 Foreign currency translation adjustments — — — — — — ( 8,069 ) ( 8,069 ) Stock-based compensation 76 1 1,512 — — — — 1,513 Shares withheld in lieu of employee tax withholding — — ( 11,995 ) — — — — ( 11,995 ) Dividends — — 331 ( 3,284 ) — — — ( 2,953 ) Balance, December 31, 2024 12,871 $ 129 $ 59,959 $ 493,673 ( 806 ) $ ( 24,999 ) $ ( 32,430 ) $ 496,332 Net income — — — 46,330 — — — 46,330 Foreign currency translation adjustments — — — — — — 937 937 Stock-based compensation 3 — 1,031 — — — — 1,031 Dividends — — — ( 3,267 ) — — — ( 3,267 ) Balance, March 31, 2025 12,874 $ 129 $ 60,990 $ 536,736 ( 806 ) $ ( 24,999 ) $ ( 31,493 ) $ 541,363 Net income — — — 48,234 — — — 48,234 Foreign currency translation adjustments — — — — — — 7,479 7,479 Stock-based compensation 1 — 1,131 — — — — 1,131 Shares withheld in lieu of employee tax withholding — — ( 35 ) — — — — ( 35 ) Dividends — — — ( 3,267 ) — — — ( 3,267 ) Balance, June 30, 2025 12,875 $ 129 $ 62,086 $ 581,703 ( 806 ) $ ( 24,999 ) $ ( 24,014 ) $ 594,905 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) (In thousands) Accumulated Additional Other Common Stock Paid-in Retained Treasury Stock Comprehensive Shares Amount Capital Earnings Shares Amount Income/(Loss) Totals Balance, September 30, 2023 12,668 $ 127 $ 71,526 $ 325,281 ( 806 ) $ ( 24,999 ) $ ( 26,909 ) $ 345,026 Net income — — — 24,085 — — — 24,085 Foreign currency translation adjustments — — — — — — 3,085 3,085 Stock-based compensation 98 — 1,657 — — — — 1,657 Shares withheld in lieu of employee tax withholding — — ( 4,752 ) — — — — ( 4,752 ) Dividends — — 423 ( 3,204 ) — — — ( 2,781 ) Balance, December 31, 2023 12,766 $ 127 $ 68,854 $ 346,162 ( 806 ) $ ( 24,999 ) $ ( 23,824 ) $ 366,320 Net income — — — 33,488 — — — 33,488 Foreign currency translation adjustments — — — — — — ( 2,269 ) ( 2,269 ) Stock-based compensation 28 1 1,205 — — — — 1,206 Shares withheld in lieu of employee tax withholding — — ( 1,724 ) — — — — ( 1,724 ) Dividends — — 13 ( 3,249 ) — — — ( 3,236 ) Balance, March 31, 2024 12,794 $ 128 $ 68,348 $ 376,401 ( 806 ) $ ( 24,999 ) $ ( 26,093 ) $ 393,785 Net income — — — 46,223 — — — 46,223 Foreign currency translation adjustments — — — — — — ( 986 ) ( 986 ) Stock-based compensation — — 957 — — — — 957 Dividends — — — ( 3,240 ) — — — ( 3,240 ) Balance, June 30, 2024 12,794 $ 128 $ 69,305 $ 419,384 ( 806 ) $ ( 24,999 ) $ ( 27,079 ) $ 436,739 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Condensed Consolidated Statements of Cash Flows (Unaudited) (In thousands) Nine months ended June 30, 2025 2024 Operating Activities: Net income $ 129,327 $ 103,796 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 5,215 5,074 Stock-based compensation 3,675 3,820 Unrealized mark-to-market gain on derivative contracts ( 433 ) ( 113 ) Bad debt (recovery) expense, net ( 149 ) 294 Deferred income taxes ( 2,847 ) ( 148 ) Changes in operating assets and liabilities: Accounts receivable, net 2,747 33,099 Contract assets and liabilities, net ( 18,381 ) ( 27,304 ) Inventories ( 2,728 ) ( 21,254 ) Income taxes ( 2,543 ) 1,037 Prepaid expenses and other current assets 1,051 ( 374 ) Accounts payable ( 7,513 ) 22,415 Accrued liabilities ( 2,216 ) ( 4,337 ) Other, net 1,657 ( 1,353 ) Net cash provided by operating activities 106,862 114,652 Investing Activities: Purchases of short-term investments ( 37,262 ) ( 27,537 ) Maturities of short-term investments 44,407 18,312 Purchases of property, plant and equipment ( 11,380 ) ( 3,527 ) Purchase of intangible assets — ( 250 ) Proceeds from sale of property, plant and equipment 20 26 Net cash used in investing activities ( 4,215 ) ( 12,976 ) Financing Activities: Shares withheld in lieu of employee tax withholding ( 12,030 ) ( 6,476 ) Dividends paid ( 9,640 ) ( 9,475 ) Net cash used in financing activities ( 21,670 ) ( 15,951 ) Net increase in cash and cash equivalents 80,977 85,725 Effect of exchange rate changes on cash and cash equivalents 2,158 412 Cash and cash equivalents at beginning of period 315,331 245,875 Cash and cash equivalents at end of period $ 398,466 $ 332,012 The accompanying notes are an integral part of these condensed consolidated financial statements. 8 POWELL INDUSTRIES, INC. AND SUBSIDIARIES Notes to Condensed Consolidated Financial Statements (Unaudited) A. Overview and Summary of Significant Accounting Policies Overview Powell Industries, Inc. (we, us, our, Powell or the Company) is a Delaware corporation founded by William E. Powell in 1947. 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. 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. Basis of Presentation The unaudited condensed consolidated financial statements include the accounts of Powell and our wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. We believe that these financial statements contain all adjustments necessary so that they are not misleading. The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Powell and its subsidiaries included in Powell’s Annual Report on Form 10-K for the year ended September 30, 2024, which was filed with the Securities and Exchange Commission (SEC) on November 20, 2024. References to Fiscal 2025 and Fiscal 2024 used throughout this report shall mean the current fiscal year ending September 30, 2025 and the prior fiscal year ended September 30, 2024, respectively. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The most significant estimates used in our condensed consolidated financial statements affect revenue recognition and estimated cost recognition on our customer contracts, allowance for credit losses, provision for excess and obsolete inventory, warranty accruals and income taxes. The amounts recorded for warranties, legal, income taxes, impairment of long-lived assets (when applicable), liquidated damages and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience, forecasts and various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the basis for recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability because the ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences become deductible. Estimates routinely change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our prior estimates. 9 Accounting Standards Updates and Disclosure Rules Issued but Not Yet Adopted In November 2023, the Financial Accounting Standard Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures , which requires that public entities disclose significant segment expenses that are regularly provided to the chief operating decision maker (CODM) on an annual and interim basis. It also requires that public entities disclose the title and position of the CODM and an explanation of how the CODM uses the reported measures in assessing segment performance and resource allocation. Additionally, it requires that all existing annual disclosures about segment profit or loss and assets must be provided on an interim basis and clarifies that single reportable segment entities are subject to the disclosure requirement under Topic 280 in its entirety. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the financial statements. Early adoption is permitted. We will implement the new disclosure requirements beginning with our Fiscal 2025 Form 10-K. In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures , which enhances the transparency of income tax disclosures. It requires greater disaggregation of information in the tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, and should be applied on a prospective basis. Retrospective application and early adoption are permitted. We are currently evaluating the impacts of the new standard. In November 2024, the FASB issued ASU No. 2024-03, Reporting Comprehensive Income – Expense Disaggregation Disclosures , which requires additional qualitative and quantitative information about specific expense categories in the notes to financial statements for both interim and annual reporting periods. In January 2025, the FASB further clarified the effective date for interim reporting periods. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within those fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impacts of the new standard. B. Earnings Per Share We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share include the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock units. The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share (in thousands, except per share data): Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Numerator: Net income $ 48,234 $ 46,223 $ 129,327 $ 103,796 Denominator: Weighted average basic shares 12,071 11,998 12,059 11,977 Dilutive effect of restricted stock and restricted stock units 104 207 107 203 Weighted average diluted shares 12,175 12,205 12,166 12,180 Earnings per share: Basic $ 4.00 $ 3.85 $ 10.72 $ 8.67 Diluted $ 3.96 $ 3.79 $ 10.63 $ 8.52 10 C. Detail of Selected Balance Sheet Accounts Inventories The components of inventories are summarized below (in thousands): June 30, 2025 September 30, 2024 Raw materials, parts and sub-assemblies $ 95,054 $ 92,314 Work-in-progress 1,415 920 Provision for excess and obsolete inventories ( 7,935 ) ( 7,361 ) Total inventories $ 88,534 $ 85,873 Property, Plant and Equipment Property, plant and equipment are summarized below (in thousands): June 30, 2025 September 30, 2024 Land $ 24,113 $ 24,110 Buildings and improvements 126,741 127,094 Machinery and equipment 97,971 94,889 Furniture and fixtures 2,877 2,885 Construction in process 11,163 3,317 $ 262,865 $ 252,295 Less: Accumulated depreciation ( 153,489 ) ( 148,874 ) Total property, plant and equipment, net $ 109,376 $ 103,421 There were no assets under finance lease as of June 30, 2025 or September 30, 2024. Accrued Product Warranty Activity in our product warranty accrual consisted of the following (in thousands): Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Balance at beginning of period $ 6,284 $ 4,568 $ 5,822 $ 3,305 Increase to warranty expense 916 2,077 3,769 5,071 Deduction for warranty charges ( 1,208 ) ( 1,412 ) ( 3,549 ) ( 3,154 ) Change due to foreign currency translation 66 ( 7 ) 16 4 Balance at end of period $ 6,058 $ 5,226 $ 6,058 $ 5,226 11 D. Revenue Revenue Recognition Our revenues are primarily generated from the manufacturing of custom-engineered products and systems under long-term, fixed-price contracts under which we agree to manufacture various products such as traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers, switches and bus duct systems. These products may be sold separately as an engineered solution but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room substations (PCRs ® ), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and the commissioning of these enclosures. Revenue from these contracts is generally recognized over time utilizing the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. We believe that this method is the most accurate representation of our performance because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts. Contract costs include all direct materials, labor and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs. We also have contracts to provide field service inspection, installation, commissioning, modification, and repair services, as well as retrofit and retrofill components for existing systems. If the service contract terms give us the right to invoice the customer for an amount that corresponds directly with the value of our performance completed to date (i.e., a service contract in which we bill a fixed amount for each hour of service provided), then we recognize revenue over time in each reporting period corresponding to the amount that we have the right to invoice. Our performance obligations are satisfied as the work progresses. Revenues from our custom-engineered products and value-added services transferred to customers over time accounted for approximately 95 % and 96 % of revenues for the three and nine months ended June 30, 2025, respectively, and approximately 96 % and 95 % of revenues for the three and nine months ended June 30, 2024, respectively. We also have sales orders for spare parts and replacement circuit breakers for switchgear that are obsolete or that are no longer produced by the original manufacturer. Revenues from these sales orders are recognized at the time we fulfill our performance obligation to the customer, which is typically upon shipment and represented approximately 5 % and 4 % of revenues for the three and nine months ended June 30, 2025, respectively, and approximately 4 % and 5 % of revenues for the three and nine months ended June 30, 2024, respectively. Additionally, some contracts may contain a cancellation clause that could limit the amount of revenue we are able to recognize over time. In these instances, revenue and costs associated with these contracts are deferred and recognized at a point in time when the performance obligation is fulfilled. Selling and administrative costs incurred in relation to obtaining a contract are typically expensed as incurred. We periodically utilize a third-party sales agent to obtain a contract and will pay a commission to that agent. We record the full commission liability to the third-party sales agents at the order date, with a corresponding deferred asset. As the project progresses, we record commission expense based on percentage of completion rates that correlate to the project and reduce the deferred asset. Once we have been paid by the customer, we pay the commission and the liability is reduced. Performance Obligations A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied. To determine the proper revenue recognition for contracts, we evaluate whether a contract should be accounted for as more than one performance obligation or, less commonly, whether two or more contracts should be combined and accounted for as one performance obligation. This evaluation of performance obligations requires significant judgment. The majority of our contracts have a single performance obligation where multiple engineered products and services are combined into a single custom-engineered solution. Our contracts include a standard one-year assurance warranty. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation, and revenue is deferred and recognized over the warranty period. If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Remaining unsatisfied performance obligations, which we refer to as backlog, represent the estimated transaction price for goods and services for which we have a material right, but work has not been performed. As of June 30, 2025, we had backlog of $ 1.4 billion, of which approximately $ 913 million is expected to be recognized as revenue within the next twelve months . 12 Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers. Our backlog does not include service and maintenance-type contracts for which we have the right to invoice as services are performed. Contract Estimates Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the availability of materials, and the effect of any delays on our project performance. We periodically review our job performance, job conditions, estimated profitability and final contract settlements, including our estimate of total costs and make revisions to costs and income in the period in which the revisions are probable and reasonably estimable. We bear the risk of cost overruns in most of our contracts, which may result in reduced profits. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. For the nine months ended June 30, 2025 and 2024, our operating results were positively impacted by $ 15.1 million and $ 14.2 million, respectively, as a result of net changes in contract estimates related to projects in progress at the beginning of the respective period. These changes in estimates resulted primarily from favorable project execution, reduced cost estimates and negotiations of variable consideration, discussed below, as well as revenue recognized from project cancellations and other changes in facts and circumstances during these periods. Gross unfavorable changes in contract estimates were immaterial for both the nine months ended June 30, 2025 and 2024. Variable Consideration It is common for our long-term contracts to contain variable consideration that can either increase or decrease the transaction price. Due to the nature of our contracts, estimating total cost and revenue can be complex and subject to variability due to change orders, back charges, spare parts, early completion bonuses, customer allowances and liquidated damages. We estimate the amount of variable consideration based on the expected value method, which is the sum of the probability-weighted amounts, or the most likely amount method which uses various factors including experience with similar transactions and assessment of our anticipated performance. Variable consideration is included in the transaction price if legally enforceable and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is resolved. Contract Modifications Contracts may be modified for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the enforceable rights and obligations under the contract. Most of our contract modifications are for goods and services that are not distinct from the existing performance obligation. Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation. Contract Balances The timing of revenue recognition, billings and cash collections affects accounts receivable, contract assets and contract liabilities in our Condensed Consolidated Balance Sheets. Contract assets are recorded when revenues are recognized in excess of amounts billed for fixed-price contracts as determined by the billing milestone schedule. Contract assets are transferred to accounts receivable when billing milestones have been met, or we have an unconditional right to payment. Contract liabilities typically represent advance payments from contractual billing milestones and billings in excess of revenue recognized. It is unusual to have advanced milestone payments with a term greater than one year, which could represent a financing component of the contract. Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period and are generally classified as current. 13 Contract assets and liabilities as of June 30, 2025 and September 30, 2024 are summarized below (in thousands): June 30, 2025 September 30, 2024 Contract assets $ 133,015 $ 102,827 Contract liabilities ( 299,512 ) ( 287,763 ) Net contract liability $ ( 166,497 ) $ ( 184,936 ) Our net contract billing position remained a net liability at both June 30, 2025 and September 30, 2024, primarily due to favorable contract billing milestones. We typically allocate a significant percentage of the progress billing to the early stages of the contract. To determine the amount of revenue recognized during the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. During the nine months ended June 30, 2025, we recognized revenue of $ 244.4 million that was related to contract liabilities outstanding at September 30, 2024. The timing of our invoice process is typically dependent on the completion of certain milestones and contract terms and subject to agreement by our customer. Payment is typically expected within 30 days of invoice. Any uncollected invoiced amounts for our performance obligations recognized over time, including contract retentions, are recorded as accounts receivable in the Condensed Consolidated Balance Sheets. Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on our experience in recent years, the majority of these retainage balances are expected to be collected within approximately twelve months. As of June 30, 2025 and September 30, 2024, we had retention amounts of $ 8.0 million and $ 7.1 million, respectively. Of the retained amount at June 30, 2025, $ 7.5 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining $ 0.5 million is recorded in other assets. Disaggregation of Revenue The following tables present our disaggregated revenue by geographic destination and market sector for the three and nine months ended June 30, 2025 and 2024 (in thousands): Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 United States $ 224,537 $ 243,744 $ 650,143 $ 620,537 Canada 42,611 29,695 108,275 74,205 Europe 5,522 9,464 16,947 24,261 Middle East and Africa 9,917 2,322 22,757 8,400 Mexico, Central and South America 1,881 1,962 3,182 6,778 Asia/Pacific 1,805 981 5,031 3,112 Total revenues by geographic destination $ 286,273 $ 288,168 $ 806,335 $ 737,293 Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Oil and gas (excludes petrochemical) $ 105,464 $ 114,336 $ 302,310 $ 301,792 Petrochemical 36,349 56,784 113,236 135,221 Electric utility 74,909 57,009 196,488 145,214 Commercial and other industrial 49,519 42,044 134,188 101,610 Light rail traction power 8,549 5,322 26,785 14,184 All others 11,483 12,673 33,328 39,272 Total revenues by market sector $ 286,273 $ 288,168 $ 806,335 $ 737,293 14 E. Long-Term Debt U.S. Revolver We have a credit agreement with Bank of America, N.A. and Texas Capital Bank with an aggregate commitment of $ 150.0 million, consisting of $ 100.0 million committed by Bank of America and $ 50.0 million committed by Texas Capital Bank (the U.S. Revolver). The U.S. Revolver has an expiration date of October 4, 2028. 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 June 30, 2025. As of June 30, 2025, we were in compliance with all of the financial covenants of the U.S. Revolver. F. Commitments and Contingencies Letters of Credit, Bank Guarantees and Bonds Certain customers require us to post letters of credit, bank guarantees or surety bonds. These security instruments assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or bank guarantee, or performance by the surety under a bond. To date, there have been no significant draws or claims related to security instruments for the periods reported. We were contingently liable for letters of credit of $ 76.0 million as of June 30, 2025. We also had surety bonds totaling $ 432.6 million that were outstanding, with additional bonding capacity of $ 767.4 million available, at June 30, 2025. We have strong surety relationships; however, a change in market conditions or the sureties' assessment of our financial position could cause the sureties to require cash collateralization for undischarged liabilities under the bonds. We have a $ 20.5 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank that provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At June 30, 2025, we had outstanding guarantees totaling $ 7.0 million, with an additional capacity of $ 13.5 million available under this Facility Agreement. The Facility Agreement provides for customary events of default and carries cross-default provisions with the U.S. Revolver. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and declared immediately due and payable. Additionally, we are required to maintain cash collateral for guarantees greater than two years . As of June 30, 2025, we were in compliance with all of the financial covenants of the Facility Agreement. Litigation We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and for which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes, and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position or results of operations or liquidity. Liquidated Damages Certain of our customer contracts have schedule and performance obligation clauses that, if we fail to meet them, could require us to pay liquidated damages. Each individual contract defines the conditions under which the customer may make a claim against us. As of June 30, 2025, certain contracts had a probable exposure to liquidated damages claims of $ 2.9 million, which could possibly increase to $ 4.0 million under certain circumstances. Based on our actual or projected failure to meet these various contractual commitments, $ 2.7 million has been recorded as a reduction to revenue. We will attempt to obtain change orders, contract extensions or accelerate project completion, which may resolve the potential for any unrecorded liquidated damages claims. Should we fail to achieve relief on some or all of these contractual obligations, we could be required to pay additional liquidated damages, which could negatively impact our future operating results. 15 G. Stock-Based Compensation Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2024 for a full description of our existing stock-based compensation plans. Restricted Stock Units We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the price of our common stock as reported on the NASDAQ Global Market during a specified period prior to the grant dates. Typically, these grants vest over a three-year period from the date of issuance and are a blend of time-based and performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The performance-based shares vest based on the three-year earnings and safety performance of the Company following the grant date. At June 30, 2025, there were 119,496 RSUs outstanding. The RSUs do not have voting rights but do receive dividend equivalents upon vesting, which are accrued quarterly. Additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued. Total RSU activity (number of shares) for the nine months ended June 30, 2025 is summarized below: Number of Restricted Stock Units Weighted Average Grant Value Per Share Outstanding at September 30, 2024 192,011 $ 35.38 Granted 20,380 184.01 Vested ( 91,832 ) 30.82 Forfeited/canceled ( 1,063 ) 45.09 Outstanding at June 30, 2025 119,496 $ 64.46 During the nine months ended June 30, 2025 and 2024, we recorded compensation expense of $ 3.1 million and $ 3.4 million, respectively, related to the RSUs. Restricted Stock Each non-employee director receives restricted shares of the Company's common stock valued at $ 0.1 million annually. The number of granted shares is calculated by dividing the $ 0.1 million by the average of high and low prices of our common stock on the grant date. The shares shall vest on the earlier of the grant anniversary date or the date of the next annual meeting of stockholders, whichever occurs first. In February 2025, 3,500 shares of restricted stock were issued to our non-employee directors at a price of $ 200.02 per share. During the nine months ended June 30, 2025 and 2024, we recorded compensation expense of $ 0.5 million and $ 0.4 million, respectively, related to restricted stock. H. Fair Value Measurements We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit price,” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established which identifies and prioritizes three levels of inputs to be used in measuring fair value. The three levels of the fair value hierarchy are as follows: Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data. 16 Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions. The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2025 (in thousands): Fair Value Measurements at June 30, 2025 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value at June 30, 2025 Assets: Cash and cash equivalents $ 398,466 $ — $ — $ 398,466 Short-term investments 34,574 — — 34,574 Rabbi trust assets — 13,293 — 13,293 Liabilities: Deferred compensation — 13,384 — 13,384 The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2024 (in thousands): Fair Value Measurements at September 30, 2024 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Fair Value at September 30, 2024 Assets: Cash and cash equivalents $ 315,331 $ — $ — $ 315,331 Short-term investments 43,061 — — 43,061 Rabbi trust assets — 12,324 — 12,324 Liabilities: Deferred compensation — 12,027 — 12,027 Fair value guidance requires certain fair value disclosures be presented in both interim and annual reports. The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below. Cash and cash equivalents – Cash and cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets. Short-term investments – Short-term investments include time deposits with original maturities of three months or more. Rabbi trust assets and deferred compensation – We hold investments in an irrevocable rabbi trust for our deferred compensation plan. The assets are primarily related to company-owned life insurance policies and are included in other assets in the accompanying Condensed Consolidated Balance Sheets. Because the mutual funds and company-owned life insurance policies are combined in the plan, they are categorized as Level 2 in the fair value measurement hierarchy. The deferred compensation liability represents the investment options that the plan participants have designated to serve as the basis for measurement of the notional value of their accounts. Because the deferred compensation liability is intended to offset the plan assets, it is also categorized as Level 2 in the fair value measurement hierarchy. There were no transfers between levels within the fair value measurement hierarchy during the quarter ended June 30, 2025. 17 I. Leases Our leases consist primarily of office and construction equipment. All of our future lease obligations are related to non-cancelable operating leases. The following table provides a summary of lease cost components for the three and nine months ended June 30, 2025 and 2024, respectively (in thousands): Three months ended June 30, Nine months ended June 30, Lease Cost 2025 2024 2025 2024 Operating lease cost $ 210 $ 237 $ 655 $ 742 Variable lease cost (1) 53 31 134 84 Short-term lease cost (2) 647 754 1,954 1,798 Total lease cost $ 910 $ 1,022 $ 2,743 $ 2,624 (1) Variable lease cost represents common area maintenance charges related to our Canadian office space lease. (2) Short-term lease cost includes leases and rentals with initial terms of one year or less. We recognize operating lease assets and operating lease liabilities representing the present value of the remaining lease payments for leases with initial terms greater than twelve months. Leases with initial terms of twelve months or less are not recorded in our Condensed Consolidated Balance Sheets. The following table provides a summary of the operating lease assets and operating lease liabilities included in our Condensed Consolidated Balance Sheets as of June 30, 2025 and September 30, 2024, respectively (in thousands): Operating Leases June 30, 2025 September 30, 2024 Assets: Operating lease assets, net $ 1,224 $ 1,216 Liabilities: Current operating lease liabilities 610 595 Long-term operating lease liabilities 614 621 Total lease liabilities $ 1,224 $ 1,216 The following table provides the maturities of our operating lease liabilities as of June 30, 2025 (in thousands): Operating Leases Remainder of 2025 $ 171 2026 617 2027 422 2028 73 2029 30 Thereafter — Total future minimum lease payments $ 1,313 Less: present value discount (imputed interest) ( 89 ) Present value of lease liabilities $ 1,224 The weighted average discount rate as of June 30, 2025 was 6.60 %. The weighted average remaining lease term was 2.19 years at June 30, 2025. 18 J. Income Taxes The calculation of the effective tax rate is as follows (in thousands): Three months ended June 30, Nine months ended June 30, 2025 2024 2025 2024 Income before income taxes $ 64,101 $ 61,796 $ 166,012 $ 135,591 Income tax provision 15,867 15,573 36,685 31,795 Net income $ 48,234 $ 46,223 $ 129,327 $ 103,796 Effective tax rate 25 % 25 % 22 % 23 % Our income tax provision reflects an effective tax rate on pre-tax income of 25 % and 22 % for the three and nine months ended June 30, 2025, respectively, compared to 25 % and 23 % for the three and nine months ended June 30, 2024, respectively. The effective tax rates for the three and nine months ended June 30, 2025 and 2024 were favorably impacted by the estimated Research and Development (R&D) Tax Credit and discrete items primarily related to the vesting of RSUs. These benefits were offset by the tax expense related to certain nondeductible items. In addition, for Fiscal 2024, favorable impacts were offset by an income inclusion related to U.S. global intangible income. K. Subsequent Events Business Acquisition As previously announced, on July 15, 2025, we entered into a definitive agreement to acquire Remsdaq Ltd. (Remsdaq), a U.K.-based manufacturer of Supervisory Control and Data Acquisition Remote Terminal Units for electrical substation control and automation in generation, transmission and distribution, for total consideration of £ 12.2 million Pounds Sterling, or approximately $ 16.3 million, which will be funded with cash on hand. The consideration included an upfront payment of £ 9.2 million Pounds Sterling with the remaining portion contingent upon Remsdaq meeting certain technical and financial milestones. We expect the transaction to close during the fourth quarter of Fiscal 2025, subject to customary closing conditions. One Big Beautiful Bill Act 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. Quarterly Dividend Declared On August 5, 2025, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $ 0.2675 per share. The dividend is payable on September 17, 2025 to shareholders of record at the close of business on August 20, 2025. 19 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS Unless otherwise indicated, all references to “we,” “us,” “our,” “Powell” or “the Company” include Powell Industries, Inc. and its consolidated subsidiaries. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements, other than statements of historical fact, included in this report are forward-looking statements. Such forward-looking statements include, but are not limited to, projections and estimates of the timing and success of specific projects and our future backlog, revenues, income, acquisitions, liquidity and capital expenditures, the effect of tariffs, completion of the Remsdaq acquisition, as well as other statements that are not historical facts contained in or incorporated by reference into this report. Statements that contain words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “potential,” “possible,” “would,” “outlook,” “will” or similar expressions are forward-looking statements. These forward-looking statements speak only as of the date of this report. We disclaim any obligation to update or revise these statements unless required by applicable law, whether as a result of new information, future events or otherwise. We caution you not to unduly rely on them. We have based these forward-looking statements on expectations and assumptions of management at the time the statements were made. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties that could cause actual results to differ materially from those included in this report, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the potential failure to adequately predict costs (including in connection with our fixed-price contracts) and prevent cost overruns, including the impacts of inflation, the effect of tariffs, potentially disruptive or unanticipated changes in suppliers, the availability of cash on hand and other sources of liquidity to fund our operating expenses and capital expenditures, the impacts of future legislative and regulatory initiatives, electronic, cyber or physical security breaches, and other factors detailed herein and in our other SEC filings. Additional important risks, uncertainties and other factors are detailed below. Risk Factors Related to our Business and Industry • Our business is subject to the cyclical nature of the end markets that we serve. This cyclicality has had, and may continue to have, an adverse effect on our operating results. • Our industry is highly competitive. • Our backlog is subject to unexpected adjustments, cancellations and scope reductions and, therefore, may not be a reliable indicator of our future earnings. • Failure to place competitive bids and adequately project costs may result in losses on our fixed-price contracts with customers. • Supplier concentration and limited supplier capacity may adversely impact our business and results of operations. • Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees. • Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations. • We are exposed to risks relating to the use of subcontractors. • Technological innovations may make existing products and production methods obsolete. • We may not be successful in our artificial intelligence (AI) initiatives, which could adversely affect our business, reputation, and results of operations. • Unforeseen difficulties with expansions, relocations, or consolidations of existing facilities could adversely affect our operations. • Quality problems with our products could harm our reputation and erode our competitive position. • Many of our contracts contain performance obligations that may subject us to penalties or additional liabilities. • Growth and product diversification through strategic acquisitions involve a number of risks. • Misconduct by our employees or subcontractors, or a failure to comply with applicable laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions. 20 • Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover. Risk Factors Related to our Financial Condition and Markets • Global economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog. • Fluctuations in the price and supply of materials used to manufacture our products may reduce our profits and could adversely impact our ability to meet commitments to our customers. • Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances, may be necessary for us to successfully bid on and obtain certain contracts. • Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement could adversely impact our business. • We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks. • A significant portion of our revenues may be concentrated among a small number of customers and may be subject to the risks of particular industries. • Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations. Risk Factors Related to our Common Stock • Our stock price could decline or fluctuate significantly due to unforeseen circumstances which may be outside of our control. These fluctuations may cause our stockholders to incur losses. • There can be no assurance that we will declare or pay future dividends on our common stock. • We may issue preferred stock on terms that could adversely affect the voting power or value of our common stock. Risk Factors Related to Legal and Regulatory Matters • Our operations could be adversely impacted by the effects of government regulations. • Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. • Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results. • Failure to develop, obtain, enforce, and protect intellectual property rights or third-party claims that we are infringing on their intellectual property could harm our business. • Provisions of our charter documents or Delaware law could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders. • Significant developments arising from tariffs and other economic proposals could adversely impact our business. • Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately or on a timely basis. General Risk Factors • We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks. • Catastrophic events, including natural disasters, health epidemics, acts of war or terrorism, climate change, among others, could disrupt our business. • A failure in our business systems or cybersecurity attacks on any of our facilities, or those of third parties, could adversely affect our business, results of operations and reputation. • Data privacy, data protection, and information security may require significant resources and present certain risks. • Changes in and compliance with Environmental, Social, and Governance (ESG) initiatives could adversely impact our business. • The departure of key personnel could disrupt our business. 21 Refer to “Risk Factors” in Part I. Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2024, which was filed with the SEC on November 20, 2024. We can provide no assurance that the forward-looking statements contained in this report will occur as expected, and actual results may differ materially from those included in this report. Investors should note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the Investors section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on our website is not part of, and is not incorporated to, this Quarterly Report on Form 10-Q. 22