POWELL INDUSTRIES Q3 FY26 earnings call POWL

Powell is aggressively expanding its manufacturing footprint to meet accelerating demand. This includes a new 30,000 square foot leased facility near its Ohio operations, with an option to expand, and a 50,000 square foot leased facility near Houston. The expansion of the Jacintoport facility, adding 335,000 square feet for custom power control rooms, is nearing completion and expected to support over $100 million of incremental annualized revenue when fully utilized. Overall, the company's total manufacturing, office, and warehouse footprint will expand by over 20% by the end of fiscal 2026 compared to fiscal 2025. The Board has also authorized the acquisition of a lease facility for approximately 300,000 square feet of manufacturing space, expected to be available in late Q2 or early Q3 FY27, supported by an $8 million investment in new equipment at the Mosely facility. The company continues to evaluate a greenfield owned facility requiring $70 million to $100 million of capital for 250,000 to 300,000 square feet.

The data center market has clearly inflected higher for Powell, contributing to record orders. A mega data center order exceeding $400 million for Phase 1 of a multiphase behind-the-meter design was a significant win, with future phases expected to be similar. This project, which is roughly a 2 to 2.5-year burn, is being executed across at least five North American facilities. The company notes that commercial markets are increasingly generating 'mega jobs' in the $100 million to $200 million range, with some exceeding this, though projects upwards of $400 million are less frequent outside of the future phases of the current large data center order. Powell is also exploring opportunities related to 800-volt data center designs and increased content for behind-the-meter generation assets.

Gross margin remained strong at 30.6% for the quarter, attributed to favorable product mix, operating leverage, and stable pricing. While the company sees opportunities for price increases, particularly in the commercial market where speed and capacity are key, the industrial market remains more price-sensitive. Management is closely monitoring moderate inflation in core commodities like copper, aluminum, steel, and engineered components, implementing commodity hedging and commercial discipline to mitigate impacts. Project closeouts contributed approximately 100 basis points to gross profit year-to-date, compared to 130 basis points a year ago, indicating strong project execution.

While labor availability has not impacted Powell in the immediate term, management anticipates it could become a challenge in fiscal 2027 and 2028. The current environment sees significant construction labor demand across various regions, including the Gulf Coast, North Texas, Midwest, and Northwest. Powell is proactively addressing this by operating two satellite engineering offices near Houston to attract critical engineering talent.

The Remsdaq acquisition is performing well, with its product portfolio successfully integrated into the U.S. commercial market, particularly for data center applications requiring automation for power switching. This has allowed Powell to use its own automation boxes instead of sourcing from third parties. The integration of Remsdaq's team and technology roadmap is progressing, with the next generation of their controller expected to be released to market within the next couple of quarters. Increased R&D spend has been necessary to support large orders, requiring resources for testing and certification of new electrical components.

Powell maintains a healthy and growing M&A pipeline, evaluating opportunities for complementary products, capabilities, and building out its services franchise. Despite rich valuations in the market, the company continues to engage where strategic fit and value are identified. Management emphasizes a long-term strategy, looking 10-15-20 years out, with investments in fixed assets primarily built around the industrial and utility markets, supported by organic growth and M&A.