Powell (POWL) Q2 2026 Earnings Call Transcript

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DATE

Tuesday, May 5, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chairman and Chief Executive Officer — Brett A. Cope
• Chief Financial Officer — Michael W. Metcalf
• Director, Investor Relations — Ryan Coleman

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TAKEAWAYS

• Revenue -- $297 million, up 6% year over year; domestic revenue increased by $4 million (2%), and international revenue rose by $14 million to $64 million, driven by offshore projects and U.K. growth.
• New Orders -- $490 million, nearly double the prior year and included two mega orders above $75 million each; drove a book-to-bill ratio of 1.7x for both the quarter and first half.
• Backlog -- $1.8 billion, representing a 12% sequential increase and a 33% year-over-year rise, with visibility now extending well into fiscal 2028.
• Backlog Composition -- 30% electric utility, 33% oil and gas including petrochemical, 29% commercial and other industrial, and 6% traction; commercial/industrial backlog now includes a low-twenties percent exposure to data centers.
• Order Book Milestone -- Awarded a post-quarter mega project of over $400 million in the data center segment, representing the largest in company history, and not yet included in reported Q2 bookings or backlog.
• Gross Margin -- 29.6%, down 30 basis points year over year but up 120 basis points sequentially, with favorable project closeouts contributing approximately 90 basis points.
• Operating Performance -- Gross profit rose $5 million to $88 million; net income was $45.9 million or $1.25 per diluted share versus $46.3 million and $1.27 per share last year.
• Cash Position -- Cash and short-term investments were $545 million at quarter end, up from $501 million three months earlier; no debt outstanding.
• Operating Cash Flow -- $51 million generated in the quarter, mainly reflecting higher earnings and favorable working capital dynamics.
• Capital Expenditures -- $1.8 million in the quarter, with $12 million to $13 million full-year plans for Jacinto Port yard upgrades; facility expansion of 335,000 square feet progressing on schedule.
• Stock Split -- A three-for-one forward split was effective at market open April 6, 2026, increasing authorized shares to 90 million, with all per-share amounts retroactively adjusted.
• SG&A -- Selling, general, and administrative expenses were $20 million, up $4 million year over year, mainly from compensation and the REMSDAQ acquisition; SG&A as a percentage of revenue increased by 90 basis points year over year but fell sequentially by 130 basis points.
• R&D Spending -- R&D was 1.4% of revenues for the quarter, with management expecting it to remain between 1% and 1.5% as organic initiatives accelerate.
• Capacity Initiatives -- Recent leases near Ohio and Houston added both manufacturing and engineering capacity; evaluating further leased space of about 50,000 square feet and an $8 million investment in rapid expansion fabrication equipment.
• Larger Facility Assessment -- Actively considering greenfield expansion requiring $70 million to $100 million of capital, potentially adding 250,000 to 300,000 square feet and $100 million to $250 million in potential annual revenue capacity.
• Acquisition Integration -- The REMSDAQ acquisition is reported as "synergistic and accretive" with ongoing expansion of services and automation offerings in the U.S.
• Government Sector Push -- Initiated investments to pursue government, military, and defense markets, characterized by recurring revenue and secular growth opportunities.

SUMMARY

Powell Industries (NASDAQ:POWL) reported transformative order momentum and backlog diversification, pointing to sustained multi-year growth visibility across key markets. The company secured its largest project to date—a post-quarter, $400 million-plus data center infrastructure award—expected to materially increase backlog and revenue realization into fiscal 2028. Management confirmed a proactive expansion strategy with near-term and long-term capacity investments, including leased facilities, manufacturing assets, and a greenfield site under review, complemented by growing investment in engineering and R&D talent. Strategic moves toward defense and government markets, in tandem with integration of recent acquisitions, underscore the push for recurring revenue streams and broader market differentiation. Capital structure remains strong with no debt, heightened operating cash flow, and a three-for-one stock split enhancing share liquidity.

• Chairman Cope said, "team across the company as we assembled a multi-division, multi-country execution plan to meet the demanding timeline on this project."
• Management emphasized that pricing is incrementally increasing only in select, supply-constrained product areas rather than broadly across all segments.
• Backlog pipeline reflects a healthy mix of large anchor jobs and numerous projects below $50 million, supporting efficient allocation of crews and scheduling flexibility.
• Management directly stated, "R&D is trending higher; we view that as a favorable attribute. We finished the quarter at about 1.4% of revenues, supporting organic product development plans.
• Chairman Cope confirmed all $400 million of the recent data center award is for "outside the data center" infrastructure in the initial phase, with opportunities for future internal phases under pursuit.
• CFO Metcalf outlined, "we do have a hedging program for copper. It essentially acts as an insurance policy to protect the margins that we have in backlog."
• Management specified that they have not had to turn down orders but "Are we able to meet the schedules of everything coming in the door," instead engaging customers on site sequencing and constructability.
• Both increased SG&A and R&D spending are framed as necessary investments, justified by expanding service and automation initiatives, new capacity adds, and the REMSDAQ acquisition.
• The recent presidential determination under the Defense Production Act is expected to expedite federal investment and permitting for critical electrical infrastructure, supporting domestic manufacturing growth.

INDUSTRY GLOSSARY

• Backlog: The total value of signed, unfulfilled orders contractually committed to the company, providing visibility for future revenue streams.
• Book-to-bill ratio: The ratio of new orders received to revenue recognized in a specified period; values above 1 indicate expanding demand and backlog.
• Behind-the-meter: Electrical infrastructure designed and installed on the customer or user's side of the utility meter, enabling on-site power generation or distribution.
• REMSDAQ: A recently acquired business focused on automation and control technology, referenced for its strategic contribution to expansion in utility and services markets.

Full Conference Call Transcript

Ryan Coleman: Thank you, and good morning, everyone. Thank you for joining us for Powell Industries, Inc. conference call today to review fiscal year 2026 second quarter results. With me on the call are Brett A. Cope, Powell Industries, Inc. Chairman and CEO, and Michael W. Metcalf, Powell Industries, Inc. 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; a telephonic replay will be available until May 12, 2026. 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 will turn the call over to Brett.

Brett A. Cope: Thank you, Ryan, and good morning, everyone. Thank you for joining us today to review Powell Industries, Inc.’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 Industries, Inc. 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 is 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 in 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 multiyear build-out 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 multiyear-long capacity impairments across the international markets and the need for importers to diversify and replace those volumes. We are 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 would 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 Industries, Inc. was awarded a mega project 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-phase campus. This project award is in excess of $400 million. This project now marks the largest project award in Powell Industries, Inc.’s history. This award is a testament to our employees, our culture, and the entire Powell Industries, Inc. 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 thousand 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 a facility that would require $70 million to $100 million of capital and provide upwards of an additional 250 thousand to 300 thousand 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 of a greenfield facility build-out.

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 thousand square feet 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 near shore 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 Industries, Inc. 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 M&A 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 REMSDAQ 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 U.S.-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, I would 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 would like to turn the call over to Mike to walk us through our financial results in greater detail.

Michael W. Metcalf: Thank you, Brett, and good morning, everyone. In the 2026 second quarter, 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 2026 second quarter 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, our book-to-bill ratio for both the second quarter as well as the 2026 first half 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 2026 second quarter and will be included in our fiscal third quarter reported numbers.

Turning to revenue, compared to the 2025 second quarter, 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 and Africa as well as an uptick in project volume across our U.K. operation. From a market sector perspective, revenues increased 35% in the commercial and other industrial market versus the 2025 second quarter, 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 period one year ago on the softness across this end market over the past several quarters.

The light rail traction power market was lower by 10% on relatively light volume as a percentage of total business revenue. Gross profit increased by $5 million to $88 million in the 2026 second quarter 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 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 Industries, Inc. divisions, with favorable project closeouts contributing roughly 90 basis points of margin tailwind in the 2026 second quarter.

Selling, general and administrative expenses were $20 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 2026 second quarter. In the 2026 second quarter, 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 2025 second quarter.

On April 2, 2026, the company effected a three-for-one forward split of its common stock and proportionally increased the number of shares of authorized common stock from 30 million to 90 million shares. This was at market open on April 6, 2026. Share and per share amounts disclosed have been retroactively adjusted to reflect the stock split. During the 2026 second quarter, 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 million to $13 million planned investment to upgrade the Jacinto Port fabrication yard is expected to be incurred during the 2026 fiscal year. At March 31, 2026, we had cash and short-term investments of $545 million compared to $476 million at 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 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, Powell Industries, Inc. is well positioned to deliver strong cash flows and earnings performance. At this point, we will be happy to answer your questions.

Operator: To ask a question, you may 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 your question, please press star and then two. At this time, we will pause momentarily to assemble a roster. We have the first question on the line of Tomo Sano from JPMorgan. Please go ahead.

Tomo Sano: Congrats on the quarter. Thank you, and good morning. Given the strong $490 million 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, how do you plan to manage the associated increases in SG&A and R&D expenses, please?

Brett A. Cope: Tomo, it is Brett. I will take the first part of that and have Mike jump in on the SG&A side. The outlook is strong. Activity entering Q3 has no let-up, just as in the prepared comments. We started at the beginning of the year, Q1 flowing into Q2, and we feel good about all three of our core drivers in the commercial and other industrial market, which has really blossomed over the last two years; oil and gas, which we are built for with a very solid outlook; and I love the utility space, and so we are hunting hard in that space.

It has always been the distribution side, but now with the uptick in generation, that is business that we want as well. The capacity adds that we are doing—the incremental so far and the larger one that is under evaluation—you know, the data center order noted in the prepared comments was a team effort. It has roughly a two-year burn. It will run through fiscal 2028, and, as we typically share on the calls, we are very thoughtful about our schedules, and we feel good about how it lays in across all of our facilities and in meeting the commitments we have made on that job. On the cost side, we are making some investments in the business.

We have largely invested in some of the strategic pillars that you find on the investor slides, especially around service and automation. On the heels of the acquisition of REMSDAQ, we have added resources in the States to start expanding that business, along with some of the synergistic adds we found in the data center market in the short term, but we are 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.

Michael W. Metcalf: Good morning, Tomo. With respect to SG&A costs, 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 expenses in the first half, in addition to the REMSDAQ acquisition. Remember, for the first half of last year, we did not have REMSDAQ in the numbers; this year, we do.

As we focus on growing the business organically and standing up some of these new capacity adds to address the market demand, while in addition investing in new initiatives such as the government initiative that Brett talked about in his prepared comments, these are investments that we are making in SG&A from a people and infrastructure perspective that we feel will generate a positive return as we look forward. And you asked about R&D as well. R&D is trending higher; we view that as a favorable attribute.

We finished the quarter at 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: Thank you, Brett and Mike. And just one follow-up, if I may. Your strong core engineering capabilities along with execution strengths such as ETO and key systems have clearly earned customer trust. How would you view the evolving competitive landscape given increasing demand and expanding supply? What steps are you taking to maintain your competitive edge?

Brett A. Cope: It has become much more competitive over the last couple of years. There are a lot of new entrants, some new private equity money coming in and trying to build up some new models—slightly different than what we do, but everybody is playing in the same general area. At Powell Industries, Inc., we take pride in the fact that we have a long-tenured group and a very family approach in the way we compete. As noted in the prepared comments, we are adding a second center here in Houston to attract additional talent to the team, and I think that will prove fruitful here in the next couple of quarters.

We are also reengaging our offshore centers, expanding their capability, doing some training, and investing there to ensure that we have options offshore as well. And then, buried within the whole model in the data center and discrete commercial markets, we talked on the last couple of calls about what the engineering load of this cycle will mean to Powell Industries, Inc. This cycle is going to be a lot more product-centric, and we are still in the early innings, but we are starting to see that around the company.

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 like 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. That is an encouraging sign that we suspected, and we are starting to see some early returns to that thesis.

Operator: We have the next question from the line of Chip Moore from Roth Capital.

Chip Moore: Hey, thanks for taking the question. Maybe a follow-up on that $400 million-plus order you got in April—fantastic. Is that all outside the four walls, or is there some inside the four walls as well? And then you mentioned first phase; what is the potential for additional phases?

Brett A. Cope: Hey, Chip, it is Brett. Morning. It is a fantastic opportunity. As you have gotten to know our model, when we get in earlier, given our strong engineering capability and our ability to work with our clients and really effect a great solution regardless of the market, that is exactly what this was. We were brought in early on a behind-the-meter design. It is not a simple job where they are generating on-site; there is some complexity around that, and that fits us very well. It is all outside the data center for the initial award.

It is sizable—gigawatts in the initial phase—and then there are multiple planned phases that we are anxious to see progress over time, and we are certainly hopeful that they will. It is in the NeoCloud space as well. We think we will get a shot at the internal side of the data center on this one—no guarantee sitting here today—but we are certainly going to do everything we can to put our best foot forward as this evolves now that we are on the early phases of this. We are following that commercially to see if we can get that over the line.

Chip Moore: Excellent. And, Brett, two more on that one. Margin implications, given it is such a large order, and the timeline being pretty quick—how are you thinking about any execution risks there, and how are you going to manage that?

Brett A. Cope: I think the margin potential fits with the comments made today and on earlier calls. I definitely believe there is opportunity here as we unlock our product-centric models as they develop across the company. Once you do the initial design, it is a multiproduct program. It is quite wide-reaching across the different products that we offer at Powell Industries, Inc.—a mix of voltages, quite a bit of 15 kV, a lot of 38 kV, both primary switchgear as well as secondary switches that we produce here, along with the CableOS product in Chicago. It actually touches just about every division in the company in the North American footprint.

As noted in the prepared comments, we put together a multi-division plan, and I think for each division we will unlock some potential as we ramp up the volumes. On timing, it is not $400 million over the next five years—it is a two to 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 broke the order apart. We have done that in the past on other jobs. I go all the way back to Hurricane Harvey where we had a job that came in and the client needed it really quick.

That is a super exciting competitive advantage that Powell Industries, Inc. has. Unlike others, our footprint is so similar from factory to factory, with metal fab and our processes, that we can leverage that in times of need or in market demand scenarios we are seeing now. That is absolutely what we have done here, and we are super excited to have earned the award and anxious to make it a success and, as you noted, see the additional phases in future years.

Chip Moore: Excellent. And if I could sneak one last one in—just around capacity. You did a good job outlining where you are going and the potential to grow capacity, but given strength across all your markets and data centers in particular, if you were to see similarly sized opportunities, what is your ability to meet those as they come along?

Brett A. Cope: We are definitely reacting—thus the comments in the prepared remarks. Along with any job, when we evaluate schedule, we look at everything all the way down to supply chain, and we noted that in the prepared remarks. We are clearly adding short-term capacity here in Houston, especially around that which we can control on the metal fab side. We also noted that, while the organic build continues, we are looking at a pivot in the near term to maybe add a larger leased space that is a little bit more efficient.

There are a lot of builds in different locales, including here in Houston and some other commercial centers in North America, where things are already there, and with minimal modification we can get them productive quicker. If and when the next one comes, we can follow the same model. The constraints would be people and supply chain, which neither is easily unlocked, but we would attack it with the same vigor that we attacked this one.

Mike and I are very involved on the supply chain side, and the whole team has, over the last couple quarters, gone out to really tighten it much better to ensure that as we make our schedules on our proposals and make our firm commitments, we are backed on supply chain so we do not have a miss there. As long as we can unlock that, it then becomes about attracting talent and getting them trained and into the Powell Industries, Inc. model to execute. That would be the number one concern moving forward.

Operator: We have the next question from the line of Manish Somaiya from Cantor. Please go ahead.

Manish Somaiya: Yes, thank you. Good morning. My first question is on pricing power. You talked quite a bit about strong markets, but in your commentary, you mentioned pricing is stable, broadly keeping in line with inflation. Why are you not getting more pricing if the markets are as strong as they are?

Brett A. Cope: 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—oil and gas and industrial, utility, and commercial—we are very sensitive to where you can push price and where you need to hold your ground. We are pushing price, and I think between that and the efficiency gains, as we start to build our plans for fiscal 2027 and beyond, we will get a good feel. I do not think it will come out so much in the reported numbers in Q4, but internally we will start to see it.

Going back to the earlier question on our operational reviews, where I was giving the answer about going around and looking at the efficiency that we are building in, I think that will come out as price and we will be able to better report on it as we hit the end of this fiscal year and then prepare into 2027. We have noted that a little bit over the last couple of calls, and I think we will be able to quantify it a bit better as we get through the next quarter or two.

Manish Somaiya: My other question pertains to you 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 Industries, Inc. when it comes to the data center market, and what percentage of market share is reasonable that you can achieve there?

Brett A. Cope: Those questions go together in my mind. On this particular job, one of the things we talk about is we really do well on the complex power story problem, and this one has a degree of complexity that we had not seen in some of the other data center jobs that we have been building our market segment on. We got involved early on this one. There is a really unique complexity beyond the behind-the-meter design that is akin to a power island you might see on an industrial facility or even an offshore platform where you are generating and distributing load locally. These behind-the-meter ones clearly have that.

They have a higher degree of complexity around the gear and around the automation, and it fits us very well. So I would say the TAM on behind-the-meter is going up for Powell Industries, Inc. beyond a straight utility connect. We are interested in both—it is not that we will not pursue both models—but the behind-the-meter opportunity for Powell Industries, Inc. is clearly going up with this complexity equation. Depending on how they are generating—whether it is a mix of resources or renewable—there are a whole bunch of ideas out there that we are seeing come across the commercial front. Our excitement for that potential is growing.

Manish Somaiya: And, Brett, just on that—the $400 million award that you got post quarter end—was that a solo contract or was that split?

Brett A. Cope: One purchase order.

Manish Somaiya: Okay. Great. Thank you so much.

Operator: We have the next question from the line of Alex Rygiel from Texas Capital. Please go ahead.

Alex Rygiel: Thank you. Just a maintenance item here first. Backlog as a percentage of total by market—can you provide that once again?

Michael W. Metcalf: Yes, sure, Alex. As we deconstruct the backlog segmentation for Q2, roughly 5% was petrochemical, 30% is utility, 6% is traction, and 29% is commercial and other industrial, which includes the data center, which is in the low twenties of that 29%. The balance is oil and gas and other.

Alex Rygiel: Very helpful. And then, as you look into 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? You can generalize there, but I am trying to get a sense of how broad your sales effort is into that segment.

Brett A. Cope: Hey, Alex, it is Brett. It is becoming more broad every quarter. If you go back a couple of years ago when we were 7% of the backlog, then 15%, then low twenties, and now jumping the next couple of quarters—it started through different channels and what I will call indirect channels through distribution or through partners. We were getting a piece of the scope, not really getting a look at the whole opportunity—whether that is on the outside of the data center or inside the data center.

Over the last couple of years, we have been adding resources on the front end—cost folks and people 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. Today, we still have that indirect OEM and partner model, which has grown, but we are clearly driving our own direct destiny where we are 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.

We like both channels to market and will continue to thoughtfully invest where it makes sense in all those channels to support the broader build-out of the market.

Operator: We have the next question from the line of John Edward Franzreb from Sidoti & Company. Please go ahead.

John Edward Franzreb: Hi, guys, and thanks for taking the questions. I am curious about how you are handling the spike in metal prices in 2026, and how does that impact the gross margin profile on a go-forward basis?

Michael W. Metcalf: Hi, good morning, John. I will take that question. 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. It essentially acts as an insurance policy to protect the margins that we have in backlog. That is the biggest piece. We stay on top of steel and aluminum as well, and we are pretty proactive with the supply chain for those core commodities.

John Edward Franzreb: Got it. And I think in the prepared comments you said something about small- to mid-sized projects being a net benefit in the quarter. Can you maybe drill down a little bit on what is going on there? And is it running above that $50 million threshold?

Brett A. Cope: Hey, John, it is Brett. Good morning. We had the two sizable jobs that we noted—one from the data center sector, the other data center job that we logged in the quarter pre-close of March, and then the utility job, which I do not want to lose sight of; I love the utility business. 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-sized jobs—the small $0 to $10 million job and then the next step up, the $10 to $50 million—that mix, given the cycle of a project build, is really advantageous for the Powell Industries, Inc. model.

We bring the project in, we schedule it, and we know there are going to be stop-and-hold points throughout its cycle. Given the different sizes of the jobs, it gives us leverage to move the crews in and around it. When we lose that mix, it creates another pressure in the business to manage through the P&L of each of our factory locations. 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 and very encouraging for how we think about planning the business. On your threshold question—no, it is not running above $50 million.

We see a normal cadence of potential larger than $50 million out there going forward across all of our core markets; the timing of them varies, but there is still a healthy mix.

Operator: Thank you. We have the next question on the line of Jonathan Paul Braatz from Kansas City Capital. Please go ahead.

Jonathan Paul Braatz: Good morning, Brett and Mike.

Brett A. Cope: Hey, John.

Jonathan Paul Braatz: Brett, just want to touch base. Obviously, the outlook is very strong, and you are considering a potential expansion of $70 million to $100 million. Given the outlook and what you are seeing, what do you need to see more of before you make that commitment? It seems like you could go ahead with it—what else might you need to make that commitment?

Brett A. Cope: John, not too much more. Mike and I have a board meeting in a couple of weeks. We have been talking to the board the last couple of quarters about it. As I noted, with the active quarter and with the commercial activity maintaining, we clearly had to react on some of the short-term needs to unlock some capacity. Maybe not optimal if I were completely honest, but absolutely going to get a good return and it was needed. I think we are just about there in being able to support not only the market activity but also our intentional strategic builds, which is why we called out some of the items on the service side.

That team is maturing; they are doing a great job building sub-strategies within that growth strategy of ours, and they are getting more confident in their sub-strategies. That adds into the options A, B, and C for the next big chunk of space.

Jonathan Paul Braatz: If we think about it and, let us 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 manufacturing space? Also, have you had to turn down any orders at this point?

Brett A. Cope: A greenfield is probably going to run us, conservatively, two years. The actual build time is less, but the variable is always the permitting. That is one of the reasons that, given the rapid growth, we may bridge that with a similar-sized leased facility and have to outlay some capital for the cranes and things we would need around the various operations we might do in that facility over a two- to five-year lease term while the other facility is being built. If we go the lease route, there is still some permitting because no facility is purpose-built—you get the shell and you still need to do some things to it.

We would see revenues quicker; we would move inventory to that space, get the cranes, and you would probably be looking at productive capacity within six months. Total revenue capacity of such a facility is going to scale; it depends on the mix of services, projects, and products that we ultimately put into that, but you can run $100 million to $250 million. As for turning down orders, I would not say we are turning anything down. Are we able to meet the schedules of everything coming in the door? The answer to that is no. We have a really broad funnel.

We have expanded our process around that funnel with the growing commercial and industrial segment and the growing resources there and capacity. 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, geographies, and facilities. We are unlocking every little bit of opportunity, which has been fantastic.

We are not able to respond positively to all the opportunities, but where we cannot hit exactly what they ask when they come in the door, we engage them on sequencing and constructability of their site and other things we can do to work together. Those conversations, given our model, are also pretty effective at reaching a good solution for both the client and for Powell Industries, Inc.

Operator: Thank you. This concludes our question and answer session. I would like to turn the conference back over to Brett A. Cope for any closing remarks.

Brett A. Cope: Thank you. Mike and I would like to thank everyone for joining us this morning. We are very encouraged by the commercial strength we are seeing across each of our core end markets and continue to expect another strong year for Powell Industries, Inc. I would like to thank the entire Powell Industries, Inc. team for their hard work and commitment to both Powell Industries, Inc. and, of course, to our customers. Mike and I look forward to updating you all next quarter.

Operator: The conference has now concluded. Thank you for attending the presentation. You may now disconnect.

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