Powell Industries (NASDAQ:POWL) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

Powell Industries reported a 6% revenue growth in Q2 2026 compared to the prior year, with a gross margin of 29.6%.

The company secured $490 million in new orders during the quarter, bringing the mid-year total to nearly $1 billion, and increased its backlog to $1.8 billion, 12% higher than the previous quarter.

Significant projects include two mega projects over $75 million and a $400 million data center project, marking the largest project award in the company's history.

The company is expanding its manufacturing capacity, including leasing new spaces near its Ohio and Houston facilities, and is considering a larger investment of $70-$100 million for additional capacity.

Powell Industries is exploring government-related work and has acquired REMSDAC, which has been synergistic and accretive.

Management highlighted strong operational efficiency, order growth, and market diversification, particularly in the electric utility and data center sectors.

The company is focusing on strategic sourcing and supply chain optimization to support future growth and is evaluating further M&A opportunities.

Full Transcript

OPERATOR

Welcome to the Powell Industries Earnings Conference call. At this time, all participants are in the listen only mode. Should any assistance please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. To ask a question may press star and then one on your touchtone phone. To withdraw your question, you may press star and 2 please note this event is being recorded. I'd like to turn the conference now over to Mr. Ryan Coleman, investor Relations. Thank you and over to you.

Ryan Coleman (Investor Relations)

Thank you and good morning everyone. Thank you for joining us for Powell Industries conference call today to Review Fiscal Year 2026 Second Quarter Results. With me on the call are Brett Kopp, Powell's Chairman and CEO, and Mike Metcalfe, Powell's CFO. There will be a replay of today's call and it will be available via webcast by going to the company's website, powellind.com or. A telephonic replay will be available until May 12th. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 5, 2026 and therefore you are advised that any time sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the Company's expectations of its future operating results that may be considered forward looking statements within the meaning of the Private Securities Litigation Reform act of 1995. Investors are cautioned that such forward looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward looking statements. These risks and uncertainties include, but are not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials, and execution of business strategies. For more information, please refer to the Company's filings with the Securities and Exchange Commission. With that, I'll turn the call over to Brett.

Brett Kopp (Chairman and CEO)

Thank you Ryan and good morning everyone. Thank you for joining us today to review Powell's fiscal 2026 second quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. The Powell team delivered another solid quarter of operational efficiency and order growth as the momentum we experienced at the start of our fiscal year continued through the second quarter. Activity levels across each of our core end markets remained healthy with notable strength in the quarter from liquefied natural gas projects, a mix of electric utility distribution and generation projects, and Also data center projects within our commercial and other industrial market sector. Revenue in the quarter grew a steady 6% compared to the prior year and continued solid project execution across the company delivered a gross margin of 29.6%. We recorded $490 million of new orders in the quarter, bringing our mid year total to nearly $1 billion in new awards. I would also note that our order book in the quarter continued to be very well balanced across the markets in which we compete. During the quarter we were awarded two mega projects, one for a data center and a second for an electric utility generation project. Each of these projects are in excess of $75 million in value. The balance of the order book in the quarter was comprised of a higher number of small and medium sized projects. Our backlog now sits at $1.8 billion, 12% higher than the prior quarter and 33% higher than one year ago. The growth in our backlog now provides visibility well into our fiscal 2028. The composition remains healthy with a mix of projects of varying sizes that will help maximize productivity across our manufacturing plants. As of quarter end, the electric utility market represented 30% of our total backlog while the oil and gas market excluding petrochemical and the commercial and other industrial markets each accounted for 29%. The diversification of the business into the electric utility market and more recent expansion of our commercial and other industrial market anchored by a demand driver from data centers are contributing to reduced cyclicality in the business, allowing us to plan beyond the current cycle and invest more broadly alongside our customers with greater visibility. At the same time, our outlook for our core oil and gas market remains strong. We are in the initial phase of a multi-year buildout of LNG export capacity. We believe the structural cost and competitive advantages possessed by U S based exporters has been elevated by the risk of multi year long capacity impairments across the international markets and the need for for importers to diversify and replace those volumes. We are also cautiously optimistic that the petrochemical market is in the early stages of a cyclical inflection. After several years of lower activity levels, we are seeing some activity in the gas to chemicals market and are further encouraged by recent upward price revisions within the global polyethylene market. I'd like to take a moment to mention a commercial development that took place subsequent to quarter end. I am very pleased to share that Powell was awarded a megaproject for the first phase of a new Greenfield data center. The scope of this award is in support of a behind the meter design for the first phase of a planned multi phased campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell's this award is a testament to our employees, our culture and the entire Powell team across the company as we assembled a multi division, multi country execution plan to meet the demanding timeline on this project. To that end, recent order trends, our market outlook and our continued organic product development continue to support prudent additions in manufacturing capacity. Last quarter we signed a lease for incremental space located near our Ohio facility. This past quarter we leased office space in the Houston metro area which will serve as a second satellite engineering center. This center complements our initial satellite engineering office that we announced and opened last year. This second center is geographically located to further enhance our ability to add critical members to our world class electrical and mechanical engineering and design teams. In response to the growth of our backlog, we are evaluating a smaller lease facility of approximately 50,000 square feet near our Moseley campus. This space would help support a new $8 million investment in fabrication equipment for short term rapid expansion of our metal fabrication capacity. We have previously shared our efforts to evaluate a larger investment in the facility that would require 70 to $100 million of capital and provide upwards of an additional 250 to 300,000 square feet of factory capacity. While we continue this assessment, we are currently evaluating complementary options for bridging between short term requirements via a leased facility versus a somewhat longer term option of a greenfield facility buildout. We are being very thoughtful throughout this process and expect a decision within the next few quarters. Meanwhile, the expansion of our Jacinto Port facility is progressing on schedule. This incremental 335,000 square foot of capacity will be critical to ensuring our ability to support all of our end markets, but specifically by providing our oil and gas customers with a premier domestic facility to produce engineered to order power distribution solutions for both on and offshore and nearshore projects as well as continued support for offshore applications. Operationally, our teams across our facilities are rising to meet the challenge of accelerating growth. We remain disciplined on the commitments we have made to our customers while staying focused on continuous improvement and driving incremental efficiencies throughout every step of our operations. As noted earlier in my comments around the recent Large Data Center Award, Powell has a market leading strength that is inherent in our people and internal collaboration. When our teams across our North American facilities come together, we are able to leverage our substantial footprint to tackle large challenges either for a single project or a broad step up in market demand. As we are currently experiencing critically important to our growth and future needs. I would also like to call out the increased efforts of our strategic sourcing and supply chain teams. It is essential that our team engages our partners to both broaden and deepen those relationships and optimize our supply chain in support of our future growth. On the MA front, we continue to evaluate a growing pipeline of inorganic opportunities that complement our organic initiatives and better position us within key markets. Candidates include complementary products and or capabilities to our current portfolio or oriented toward building out our services franchise. Along these lines, our recent acquisition of REMSDAC continues to progress well and has quickly proven synergistic and accretive across the company. Lastly, pursuant to our ongoing efforts to build a stronger, more diversified business, we have recently begun investing in resources to build a wider funnel of government related work, including U.S. military and defense applications. These are markets with secular long term growth drivers that typically carry recurring revenue profiles which would be conducive to growing our services franchise. We are in the early days of this effort, but believe our US Centric supply chain operations and workforce leave us well positioned to play a critical role within the markets that support our national security and defense. On a related note, we'd like to briefly commend the White House's recent Presidential determination under Section 303 of the Defense Production act, which formally designated both substations and switchgear, among other electrical products and their upstream supply chains as essential to national defense. Ensuring the domestic production of critical electrical gear is essential to America's ability to deploy large scale grid infrastructure and the Presidential Memorandum authorizes the Department of Energy to expedite procedural requirements and immediately deploy federal capital to expand domestic grid manufacturing capacity. In summary, we remain very pleased with our financial performance for the first half of the year and are encouraged by the commercial dynamics that we continue to see across the markets we serve. With that, I'd like to turn the call over to Mike to walk us through our financial results in greater detail.

Mike Metcalfe (Chief Financial Officer)

Thank you Brett and good morning everyone. In the second quarter of fiscal 2026, we reported total revenue of $297 million compared to $279 million, or 6% higher, versus the same period in fiscal 2025. New orders booked in the second fiscal quarter of 2026 were $490 million, which was nearly double the orders booked in the same period one year ago and included two mega orders, each with an order value exceeding $75 million. The first mega order reflects the largest utility order that the business has ever recorded and is for a large generation facility in the eastern United States. The second mega order in the quarter for medium voltage electrical distribution equipment is destined for a data center in the central United States as a result of the strong commercial activity across our key end markets. The book to bill ratio for both the second quarter as well as the first half of fiscal 2026 is 1.7 times the continued momentum across all end markets, particularly domestically, and the resulting orders volume in the second fiscal quarter elevated our backlog to $1.8 billion, a 33% increase or 438 million higher versus the same period one year ago and $189 million higher. Sequentially, the composition of our backlog continues to diversify with our core industrial end markets across petrochemical and oil and gas representing 33% of the total backlog, while the electric, utility and commercial and other industrial markets represent 30% and 29% of the $1.8 billion of backlog respectively. As Brett mentioned in early April, after the close of our second fiscal quarter, the business secured a mega order in the data center end market with a value in excess of $400 million. This order value is not reflected in either the orders or backlog numbers for the second fiscal quarter of 2026 and will be included in our fiscal third quarter reported numbers. Turning to revenue, compared to the second quarter of fiscal 2025, domestic revenues were higher by 4 million or 2%, while international revenues were up by $14 million to $64 million, primarily driven by the offshore projects that are being executed in the Far East in Africa, as well as an uptick in project volume across our UK operation. From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the second quarter of fiscal 2025, while the electric utility and the oil and gas markets increased 14% and 11% respectively. Offsetting these increases, the petrochemical market declined by 37% versus the same one year ago on the softness across this end market over the past several quarters, while the light rail traction power market was lower by 10% on relatively light volume As a percentage of the total business revenue, gross profit increased by 5 million to $88 million in the second fiscal quarter of 2026 versus the same period one year ago. Gross profit as a percentage of revenue was slightly lower by 30 basis points to 29.6% of re revenue versus the same period a year ago and was 120 basis points higher. Sequentially. Margin rates exiting backlog continued to benefit from strong execution and volume leverage across all of the Powell divisions, with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the second fiscal quarter of 2026. Selling general and administrative expenses were $26 million in the current period, an increase of $4 million compared to the same period a year ago, primarily driven by higher compensation expenses across the business. SG&A as a percentage of revenue increased by 90 basis points year over year to 8.7% in the current fiscal quarter, but declined sequentially by 130 basis points, reflecting a higher revenue base in the second quarter of fiscal 2026. In the second quarter of fiscal 2026, we reported net income of $45.9 million, generating $1.25 per diluted share compared to net income of $46.3 million, or $1.27 per diluted share in the second quarter of fiscal 2025.

Mike Metcalfe (Chief Financial Officer)

On April 2, 2026, the company effected a 3-for-1 forward split of its common stock and proportionally increased the number of shares of authorized common stock from 30 million to 90 million shares. Each shareholder received two additional shares for every one share held on the March 20, 2026 record date. The shares of common stock retain a par value of $0.01 per share. Trading began on a split adjusted basis at market open on April 6, 2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split. During the second quarter of fiscal 2026, we generated $51 million of operating cash flow, principally driven by higher earnings generated in the second fiscal quarter. Investments in property, plant and equipment in the fiscal second quarter totaled $1.8 million, reflecting modest capital spending on equipment maintenance and production assets as well as capital expenditures related to the Jacinto Port expansion project. The majority of the $12 to $13 million planned investment to upgrade the Jacinto Port fabrication yard is expected to be incurred during the second half of fiscal 2026.

Mike Metcalfe (Chief Financial Officer)

At March 31, 2026, we had cash and short term investments of $545 million compared to 476 million at the September 30, 2025 and 501 million at December 31, 2025. The company does not hold any debt looking forward. As we move into the second half of fiscal 2026, we remain encouraged by sustained commercial activity across our core end markets, coupled with our continued focus on execution, our ability to leverage volume across our global manufacturing footprint, and the size and quality of our backlog.

Mike Metcalfe (Chief Financial Officer)

Powell is well positioned to deliver strong cash flows and earnings performance for the remainder of FISC 2026. At this point, we'll be happy to answer your questions.

OPERATOR

Thank you. We will now begin the question and answer session. To ask a question, please press star and one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw a question, please press star and then two. At this time, we'll pause momentarily to assemble a roster. We have the first question from the line of Tomo Sano from JP Morgan.

OPERATOR

Please go ahead.

Tomo Sano (Equity Analyst)

Hi, good morning everyone. Congrats on a quarter.

Mike Metcalfe (Chief Financial Officer)

Good morning.

Tomo Sano (Equity Analyst)

Good morning. Thank you. And given the strong 490 million dollars in orders booked in Q2 and then with the addition of the 400 million-plus data center orders, how should we think about your order Outlook for Q3 and beyond and also in light of this growth and how do you plan to manage the associated increases in SG&A and R and D expenses?

Brett Kopp (Chairman and CEO)

Thomas, Brett, I'll take the first part of that. Have Mike jump in on the SG&A side. The outlook is strong activity entering Q3 here. There's no let up. Just as the prepared comments we started at the beginning of the year, Q1 flowing into Q2, we feel good about all three of our core drivers and the commercial and other industrial, which is really, you know, really blossoming over the last two years. Oil and gas, which we're built for, very solid outlook. And I love the utility space. And so we are hunting hard in that space with this. You know, it's always been the distribution side, but now with the uptick in generation, that's business that we want as well. So the capacity add that we're doing the incremental so far, the larger one that's under evaluation. You know, the data center order and prepared comments was a team effort. It has roughly a two year burn. It'll run through the end of fiscal 28. And you know, as we typically share on the calls, we're very thoughtful about our schedules and we feel good about how it lays in across all of our facilities and meeting the commitments we made on that on that job. So feel pretty good as we sit here. On the cost side. We are making some investments in the business. We've largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. You know, on the heels of the acquisition of remsdac, we've added resources in the states to start expanding that business. Along with some of the synergistic ads we found in the data center market in the short term, but we're still progressing our medium and long term plans that align with the reason we bought the business to begin with, which was to expand in the utility market.

Mike Metcalfe (Chief Financial Officer)

Yeah, good morning Tomo, this is Mike. With respect to SG and a cost, you know, they continue to trend in the upper single digits as a percentage of revenues as we invest in some of these new programs that Brett alluded to. The increase on a year over year basis really is driven by higher base and to a lesser extent variable incentive compensation expense expenses in the first half in addition to the remstac acquisition. Remember for the first half last year we didn't have remstack in the numbers. This year we do. But as we focus on growing the business organically and standing up, some of these new capacity adds to address the market demand. Well, in addition to that, investing in new initiatives such as the government initiative that Brett talked about in his prepared comments. These are both investments that we're making in SGA from a people and infrastructure perspective that we feel will generate a positive return as we look forward. And from you asked about R and D as well. R and D is trending higher. We view that as a favorable attribute. We finished the quarter about 1.4% of revenues and you can expect this to probably hold in that range between 1 and 1.5% as the team ramps up the organic initiatives to develop and commercialize new products.

Tomo Sano (Equity Analyst)

Thank you Brett and Mike. And just one follow up if I may. Your strong core engineering capabilities along with execution strengths such as the Engineer-to-Order (ETO) and kit systems. We think it's have clearly earned a customer trust. But how do you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge?

Brett Kopp (Chairman and CEO)

It is become much more competitive the last couple of years. A lot of new entrants, some new private equity money coming in and trying to build up some new models. You know, slightly different than what we do, but everybody's playing in the same general area. You know Powell, we take pride in the fact that we have a long tenured group, a very family approach in the way we compete. And you know, in the prepared comments, we are adding a second center here in Houston to attract additional talent to the team. We think that will prove fruitful here in the next couple quarters. We're also re engaging some of our offshore centers, expanding their capability, doing some training and investing there to ensure that we have options that are offshore as well. And then sort of buried within the whole model, TOMO is in the data center and discrete commercial markets. We talked in the last couple calls about what will the engineering load of this mean to power this cycle. That is going to be a lot more product centric. And we're still early innings, but we're starting to see that around the company. So Mike and I just finished up our spring operational tours where we go around all the plants and I can share that Again, very early innings, but it looks to be that we are seeing some nice engineering efficiency on these large jobs in the data center market, which will reduce the burden and allow us to make some adjustments in how we allocate our resources going forward on these different segments. So that's, that's an encouraging sign that we suspected and are starting to see some early returns to that thesis.

Tomo Sano (Equity Analyst)

Thank you very much.

OPERATOR

Thank you. We have the next question. Line of Chip Moore from Rock Capital. Please go ahead.

Chip Moore

Hey, thanks for taking the question. Hey, everybody, maybe a follow up on that $400 million plus order you got in April. Fantastic. I guess, you know, is that all outside or is this, you know, some inside the four walls as well? And then, you know, you mentioned first phase. Talk about potential for additional phases.

Brett Kopp (Chairman and CEO)

Maybe start there. Hey, Chip, it's Brett. Morning. Yeah, fantastic opportunity. The other comment I'd share is it's an opportunity like as you've gotten to know our model when you get in earlier and given our strong engineering capability and our ability to work with our clients and really affect a great solution regardless of the market, that's exactly what this was. We were brought in early on a behind the meter. It's not a simple job where they're generating on site. There's some complexity around that. Again, that fits us very well. It is all outside the data center. The initial award, it's sizable. It's a couple of gigawatts initial phase and then there are multiple plan phases that will, you know, we're anxious to see if that progresses over time. Certainly hopeful that it will. And it is in the neo-cloud space. I'd show that as well. So I think we'll get a shot at the internal side of the data center on this one. No guarantee sitting here today, but we're certainly going to do everything we can to put our best foot forward as this evolves, now that we're on the early phases of this. So we're certainly following that commercially and see if we can get that over the line.

Chip Moore

Excellent. And Brett, maybe two more on that One just margin implications given it's such a large order and then the timeline being pretty quick, just how are you thinking about any execution risks there and how are you going to manage?

Brett Kopp (Chairman and CEO)

Yeah, I think the margin potential fits with the comments made a little bit today in earlier calls. I definitely believe there's opportunity in here as we unlock our product centric models as they develop across the company. You know there's a lot of once you do the initial design, it's a multi product. It's actually quite wide reaching to the different products that we offer at Powell. A mix of voltages, quite a bit of 15kV, a lot of 38, both primary switch gear as well as secondary switches that we produce here along with the cable bus product on Chicago. So that actually touches just about every division in the company in the North American footprint. And that's on the prepared comments, the comment we put together. And so I think for each one of the divisions we'll unlock some potential as we ramp up the volumes and then on a timeframe it. It's not like it's 400 million over the next five years, it's a two, two and a half year build out. Because we were able to use this incredible footprint that we have in the company. It was really a team effort. We came together and kind of broke the order apart. We've done that in the past on other jobs. I go all the way back to Hurricane Harvey where we had a, we talked on the call back then about a job that came in and the client needed it really quick. That's a super exciting competitive advantage that Powell has. I believe unlike others where our footprint is so similar from factory to factory with metal fab and our processes that we can lever that in times of need or market demand like we're seeing now. So that is absolutely what we've done here and super excited to have been, have earned the award and anxious to really make it a success and as you noted, see the additional phases in the future years.

Chip Moore

Excellent. And if I could sneak one last one in just around capacity. You did a good job sort of outlining where you're going and the potential to grow capacity. But just given strength across all your markets really and data center in particular, if you were to see similarly sized opportunities, what's your ability to meet those as they come along?

Brett Kopp (Chairman and CEO)

Thanks. Yeah, we're definitely reacting thus the comments in the prepared remarks. We along any job when we evaluate schedule we always we look at everything all the way down to supply chain. And so again also noted that in the prepared remarks. So we are clearly adding short term capacity here in Houston, especially around that which we can control. The metal fab side we noted in the comments also about while the organic build continues, we are clearly looking at a pivot in the near term to maybe add a larger lease space. It's a little bit more efficient. There's a lot of, a lot of builds in different locales including here in Houston, some other commercial centers in North America where things are already there and with minimal modification we can get them more productive quicker. So I think that if and when the next one comes, we could follow the same model and the constraints would be people and supply chain, which, you know, neither of those is easily done lock but we would attack it with the same vigor that we attack this one. Mike and I are very involved in the supply chain side and the whole team, the last couple quarters have gone out to really understand it much better to ensure that as we make our schedules on our proposals and we make our firm commitments that we're backed on supply chain so we don't have a miss there. And then as long as we can unlock that, it'll become come back to just attracting talent and getting them trained and into the Powell model to execute. So that would be the number one concern moving forward. Very good.

Chip Moore

Appreciate all the color. I will pop back in queue, thanks.

OPERATOR

Thank you. We have the next question. Line of Manish Somaya from Canto. Please go ahead.

Manish Somaya

Yes, thank you. Good morning. My first question is on pricing power. Brett and Mike, you talked quite a bit about strong markets, but in your commentary you mentioned pricing is stable, broadly keeping in line with inflation. Why aren't we getting more pricing if the markets are strong as they are?

Brett Kopp (Chairman and CEO)

We are getting some price, Manish, for sure in certain product areas that have become constrained in the demand supply curve, we are absolutely moving up price incrementally in those markets across all three verticals. When you look at how we're competing in the oil and gas industrial market, utility market, we're very sensitive to where you can push price and where you, where you need to sort of hold your ground. So we are pushing price. I think we'll start between that and the efficiency gain, you know, as we, as we start to build our plans for 27 and beyond, we'll get a good feel in Q4. I don't think it'll come out so much in the numbers in Q4, just kind of thinking forward, but internally we'll start to see it. I kind of, you know, kind of go back to the earlier question on our op reviews where I was giving the answer, going around and looking at the efficiency that we're building into. There's. I think that will come out as price and we'll be able to better report on it as we hit the end of this fiscal and then prepare into 27. So kind of noted that a little bit over the last couple calls. And I think we'll be able to quantify it a little bit better as we get through the next quarter or two in the company and give you a better report as to what that is.

Manish Somaya

My other question pertains to you guys taking on larger, more complex projects. How should we think about the cadence for margins going forward? And then more specifically on the 400 million plus award for the data center, was that a solo award? And how does that change your perspective on the TAM for Powell when it comes to data center market? And what percentage of market share is reasonable that you can achieve in that?

Brett Kopp (Chairman and CEO)

Well, those questions in my mind go together because on this particular job, one of the things we talk about is we really do well on the complex power storage problem. And this one is it has a degree of complexity that we hadn't seen in some of the other data center jobs that we've, that we've been building our market segment on. And so when we got involved early on this one, there is a really unique complexity on the behind the meter design that's akin to a power island that we might see on an industrial facility or even an offshore platform where you're generating and distributing load locally. And these behind the meter ones clearly have that. They have a higher degree of complexity around the gear, they have a higher degree of complexity around the automation, and it fits us very well. So I'd say the TAM on a behind the meter is going up for Powell, say beyond a straight utility connect. We're interested in both. It's not that we won't pursue both models, but the behind the meter opportunity for Powell clearly going up with this complexity equation. So depending on how they're generating, whether it's a mix of resources or renewable, there's a whole bunch of ideas out there that we're seeing come across the commercial front. I'd say our excitement for that potential is growing.

Manish Somaya

And Brett, just that, the $400 million award that you got post the quarter end, was that a solo contract or Was that split no.

Brett Kopp (Chairman and CEO)

1 purchase order? Okay.

Manish Somaya

Okay, great. Thank you so much.

OPERATOR

Thank you. We have the next line of Alex Regill from Texas Capital. Please go ahead thank you.

Alex Regill

Just a maintenance item here. First backlog is a percentage of total by market. Can you provide that once again?

Mike Metcalfe (Chief Financial Officer)

Yeah, sure. Alex, this is Mike. So as we deconstruct the backlog segmentation for Q2, roughly 5% was Petrochem, 29% was oil and gas, 30% is utility, 6% is traction, and 29% is commercial and other industrial, which includes the data center, which is in the low 20s of that 29. And then, you know, the rest is other.

Alex Regill

Very helpful. And then as you look at the data center market more broadly, how many customers are you working for right now and how many customers are you talking to right now? And you know, you can obviously generalize there, but trying to get a sense of how broad your sales effort is into that segment. Aox, Sprite, it's becoming, you know, every quarter more and more broad. If you go back a couple years ago when we were 7% of the backlog, then 15, 22 and now jumping next couple quarters, it started through different channels and what I'll call, you know, indirect channels through distribution or through partners where we were getting a piece of the scope, not really getting a look at the whole opportunity, whether that's, you know, on the outside of the data center, you know, yet inside the data center. So it started in that manner. Over the last couple of years we've been adding resources, you know, front end has cost folks from the industry to help us better understand how to attack that market more thoughtfully. And that is clearly having a return to the company. And so today, fast forward, we still have that indirect OEM and partner model which has grown, but clearly driving our own direct destiny where we're getting in earlier and having direct conversations with the contractor or even the ultimate end client or a combination of the two. And that is starting to grow. So we like both channels to market and we'll continue to thoughtfully invest where, where it makes sense in all those channels to support the broader build out of the market. Very helpful.

OPERATOR

Thank you. We have the next question line of John Friendship from Sidoti and company. Please go ahead.

John Friendship

Hi guys, and thanks for taking the questions. I'm actually curious about how you're handling the spike in metal prices in 2026 and how does that impact the gross margin profile on a go forward? Bas.

Mike Metcalfe (Chief Financial Officer)

Hi, good morning, John, this is Mike. I'll take that question. So we are very proactive with our metals, specifically copper. As you know, we use a lot of copper and we do have a hedging program for copper, essentially acts as an insurance policy to protect margins that we have in backlog. So that's the biggest piece. We stay on top of steel, aluminum as well. But we're pretty proactive with the supply chain for those core commodities.

John Friendship

Got it. And I think in the prepared comments you said something about small to mid sized projects were a net benefit in the quarter. Can you just maybe drill down a little bit of what's going on there?

Brett Kopp (Chairman and CEO)

Hey, John, it's Brett. Morning. Yeah, we had two sizable jobs that we noted in the comment. One from the data center, the data center job that we logged in the quarter pre. Pre close of March. And then the utility job, which I don't want to lose sight of. I love the utility business, but when you look at the balance and you know our model well, when we get that nice mix of having those anchor jobs in the backlog, but then being able to put different size jobs, you know, the small zero to $10 million job and then the next step up sort of the 10 to 50 is the way I think about it. Having those, given the cycle of a project build really is advantageous for the POW model in that we bring the project in, we schedule it, and we know that they're going to be stop and hold points throughout its cycle. Given the different size of the job, it gives us leverage to move the crews in and around it. So when we lose that mix, it creates another pressure in the business to manage through the P and L of each of our factory locations. But. But that really healthy bulk of small and mediums that just came in Q2 and again is continuing in commercial activity as we look forward is very healthy, very encouraging for how we think about planning the business. So we wanted to call that out.

John Friendship

No, certainly. And is it Running above that $50 million threshold, Brett, or no, no, no.

Brett Kopp (Chairman and CEO)

I mean, okay. We see kind of the normal cadence of potential out there going forward in terms of those jobs that are larger than 50. So you know what, we've kind of, you know, I think kind of started picking up year, year and a half ago. We said, we shared that there'd be, you know, there's still a healthy mix across all the core markets. Just that the timing would be suspect. I don't. No change to those comments. There's still a healthy mix of those out there. There's the timing of them.

John Friendship

Okay, thank you, Brett. Everything else has been addressed.

Brett Kopp (Chairman and CEO)

Appreciate it. All right, take care.

OPERATOR

Thank you. We have the next question. Lionel. John Bratt from Kansas City Capital, please go ahead.

John Bratt

Good morning, Brett. Brett, just want to touch base.

Brett Kopp (Chairman and CEO)

Obviously the outlook is very strong and you're considering a potential expansion of 70 to $100 million. And I guess given the outlook and what you're seeing, what do you need to see more before you make that, for you to make that commitment? You know, it seems, the business obviously seems very good. It seems like you could go ahead, go ahead with it, but

John Bratt

might you need to make that commitment, John? Not too much more. Mike and I have got a board in a couple weeks, the board, we've been talking to the board last couple quarters about it. So you know, we had, as I noted, we had with the active quarter and with the commercial activity maintaining, clearly we had to react on some of the short term needs, unlock some needs. Maybe not optimal if I were completely honest, but, but absolutely going to get a good return and need it. And so I think we're just about there and being able to support not only the market activity but even don't want to lose sight of our intentionality on our strategic builds, which is why we called out some of the stuff on the service side. So that team is maturing just to kind of call it out. They're doing a great job building some sub strategies within that, within that growth strategy of ours and they're getting more confident with their sub strategies and that adds into the options A, B and C for the next big chunky space.

Brett Kopp (Chairman and CEO)

So if we think about it and let's say in three or four months you would go ahead and make that decision, what kind of timeline would it be to get something like this constructed and up and going and what might be the revenue, capacity or potential of such a new, such a new manufacturing space? So a greenfield is probably going to run us conservatively two years. The actual build time is less, but, but the variable is always the permit. So that's one of the reasons, given the rapid growth, that we may bridge that with a similar sized lease facility and have to outlay some capital for the cranes and things we would need around the different various things we might do in that facility over a three to five year lease term while the other facility is being built. So that's our thinking today, if we go the lease route, still some permitting because no facility is purpose built, you know, you get the shell and you still got to do some things to it. So you know, we'd still, we'd see revenues quicker, we'd move inventory to that space, get the cranes and you'd probably be looking at productive capacity within 6 months total. Revenue of such a facility, it's going to scale, you know, again, depends on the mix of service and projects and products that we ultimately put into that. But you can run 100 to 250 million.

John Bratt

Have you had to turn down any

Brett Kopp (Chairman and CEO)

orders at this point? I wouldn't say we're turning anything down. Are we able to meet the schedules of everything coming in the door? The answer to that is no. You know, we have a really broad funnel. We've expanded our process around that funnel. With the growing commercial and industrial segment and, and the growing resources there, they're growing capacity. You know, the team play, as we noted today, has become much more prevalent day in and week out here at the company, which has been fantastic to see the company come together and the team really work across their functional areas, across the geographies and across the facilities. So we're unlocking every little bit of opportunity, which has been fantastic to see. So no, we're not able to respond positively to all the opportunities, but we're where we always strive to. If we can't hit exactly what they ask when they come in, the door is engage them on sequencing and constructability of their site and are the things that we can do to work together. And so those conversations, given our model, also pretty effective at trying to reach a good solution for both the client and for Powell.

John Bratt

Okay, thank you, Brooke. Yep. Thanks, John.

OPERATOR

Thank you. This concludes our question and answer session. I would like to turn the conference back over to Brett Kopp, the CEO, for any closing remarks.

Brett Kopp (Chairman and CEO)

Thank you, Myron. I would close with Mike and I just thanking everyone for joining us this morning. We're very encouraged by the commercial strength we're seeing across each of our core end markets and continue to expect another strong year for Powell. I'd like to thank the entire Powell team for their hard work and commitment to both Powell and and of course to our customers. Mike and I look forward to updating you all next quarter.

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