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What changed in POWELL INDUSTRIES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of POWELL INDUSTRIES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+177 added−173 removedSource: 10-K (2023-12-06) vs 10-K (2022-12-06)

Top changes in POWELL INDUSTRIES INC's 2023 10-K

177 paragraphs added · 173 removed · 130 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

24 edited+6 added−5 removed24 unchanged
Biggest changeUnanticipated changes in material requirements, market conditions and disruptions in the supply chain or price increases could impact production costs and affect our consolidated results of operations. 5 Over the past two years, as a result of the challenges created by global economic uncertainty, the COVID-19 pandemic and commodity market volatility, we have experienced supply chain disruptions and anticipate that such disruptions, driven predominately by availability and cost volatility across our raw materials, components and labor force, may continue.
Biggest changeMaterial costs represented 49% of revenues in Fiscal 2023, 51% of revenues in Fiscal 2022, and 49% of revenues in Fiscal 2021. Unanticipated changes in material requirements, market conditions and disruptions in the supply chain or price increases could impact production costs and affect our consolidated results of operations.
Powell’s expertise is in the design, engineering, manufacturing, project management and integration of assorted systems into a single, custom-engineered deliverable. We market and sell our products and services, which are typically awarded in competitive bid situations, to a wide variety of customers and governmental agencies spanning across diverse markets and geographic regions.
Powell’s expertise is in the design, engineering, manufacturing, project management and integration of assorted systems into a single, custom-engineered deliverable. We market and sell our products and services, which are typically awarded in competitive bid situations, to a wide variety of customers and governmental agencies spanning diverse markets and geographic regions.
Item 1. Business Overview Powell Industries, Inc. is a Delaware corporation founded by William E. Powell in 1947. We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.
Item 1. Business Overview Powell Industries, Inc. is a Delaware corporation founded by William E. Powell in 1947. We develop, design, manufacture and service custom-engineered equipment and systems that (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.
We believe that the 11-year average tenure of our employees is a reflection of our inclusive and supportive culture, and focused efforts on internal promotion, key employee retention and succession planning. Our annual Organizational Capabilities Review is focused on succession planning within our organization and is reviewed annually by our Board of Directors.
We believe that the nine-year average tenure of our employees is a reflection of our inclusive and supportive culture, and focused efforts on internal promotion, key employee retention and succession planning. Our annual Organizational Capabilities Review is focused on succession planning within our organization and is reviewed annually by our Board of Directors.
Additionally, all of our reports filed with the SEC are available via their website at sec.gov . References to Fiscal 2022, Fiscal 2021 and Fiscal 2020 used throughout this Annual Report relate to our fiscal years ended September 30, 2022, 2021 and 2020, respectively.
Additionally, all of our reports filed with the SEC are available via their website at sec.gov . References to Fiscal 2023, Fiscal 2022 and Fiscal 2021 used throughout this Annual Report relate to our fiscal years ended September 30, 2023, 2022 and 2021, respectively.
Our expertise in vacuum circuit breaker engineering is internationally recognized, and we commit to incorporating continuous product improvements that will ensure sustained operational safety and reliability across the markets we serve. Markets We strive to be the supplier of choice for custom-engineered system solutions and services to a broad array of customers and markets.
Our expertise in vacuum circuit breaker engineering is internationally recognized, and we are committed to incorporating continuous product improvements that will ensure sustained operational safety and reliability across the markets we serve. Markets We strive to be the supplier of choice for custom-engineered system solutions and services to a broad array of customers and markets.
Demand for our services and products is driven predominantly by the oil and gas and electric utility industries, but we also serve other markets where customers need to manage, monitor and control large amounts of electrical energy through a complex network of electrical components and systems.
Demand for our products and services is driven predominantly by the oil and gas, petrochemical and electric utility industries, but we also serve other commercial and industrial markets where customers need to manage, monitor and control large amounts of electrical energy through a complex network of electrical components and systems.
Backlog may not be indicative of future operating results as orders in our backlog may be cancelled or modified by our customers and may not be indicative of continuing revenue performance over future fiscal quarters. Raw Materials The principal raw materials used in our operations include steel, copper and aluminum and various electrical components.
Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers and may not be indicative of continuing revenue performance over future fiscal quarters. 5 Raw Materials The principal raw materials used in our operations include steel, copper and aluminum, as well as various engineered electrical components.
No customer accounted for more than 10% of our consolidated revenues in Fiscal 2020. 4 Research and development activities are critical to Powell’s future and are focused on both the development of new products and services as well as enhancing current product offerings.
No single customer accounted for more than 10% of our consolidated revenues in Fiscal 2023. 4 Research and development activities are critical to Powell’s future and are focused on both the development of new products and services as well as enhancing current product offerings.
Our backlog does not include service and maintenance type contracts for which we have the rights to invoice as services are performed.
Our backlog does not include service and maintenance-type contracts for which we have the right to invoice as services are performed.
While we have experienced some issues related to increased prices as well as increased delivery lead times for the purchase of key raw materials or components, we continue to monitor the availability (including transportation) and price of components and raw materials on a regular basis, as well as any potential impact on our operations.
While we have experienced, and may continue to experience, issues related to increased lead times for the purchase and delivery of key raw materials or components, we continue to monitor the availability (including transportation) and price of components and raw materials on a regular basis, as well as any potential impact on our operations.
Our supply base for certain key components and raw materials is limited. Many of our products require raw materials and components supplied by a limited number of suppliers, and in some instances, a single supplier. Changes in our design to accommodate similar components from other suppliers could be implemented to resolve a supply problem related to a sole-sourced component.
Many of our products require raw materials and components supplied by a limited number of suppliers, and in some instances, a single supplier. Changes in our design to accommodate similar components from other suppliers could be implemented to resolve a supply problem related to a sole-sourced component.
We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business. Specific to the oil and gas sector, we serve the upstream, midstream and downstream end markets.
We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business. In the oil, gas and petrochemical markets, we serve the upstream, midstream and downstream end markets.
Human Capital At September 30, 2022, we had 1,935 full-time employees and 236 contract employees located primarily in the U.S., Canada and the United Kingdom (U.K.) Our employees are not represented by unions, and we believe that our relationship with our employees is good.
Human Capital At September 30, 2023, we had 2,363 full-time employees and 362 contract employees located primarily in the U.S., Canada and the United Kingdom (U.K.). Our employees are not represented by unions, and we believe that our relationship with our employees is good.
We establish annual goals and monthly operating metrics, which have resulted in a safety incident rate that is approximately one-half the industry average, according to the U.S. Bureau of Labor Statistics.
We establish annual goals and monthly operating metrics, which have resulted in a safety incident rate of 0.7 which is below the industry average, according to the U.S. Bureau of Labor Statistics.
Products and Services Our principal products include integrated power control room substations (PCRs®), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers, switches and bus duct systems.
Products and Services Our principal products include integrated power control room substations (PCRs®), custom-engineered modules, electrical houses (E-Houses), traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers, switches and bus duct systems. These products are designed for application voltages ranging from 480 volts to 38,000 volts.
If during that time the customer were to experience financial distress, a decline in business or circumstances that would otherwise necessitate a cancellation of a project with us, our revenue could be adversely impacted.
From time to time, an individual manufacturing facility may have significant volume from one particular customer that would be material to that facility. If during that time the customer were to experience financial distress, a decline in business or circumstances that would otherwise necessitate a cancellation of a project with us, our revenue could be adversely impacted.
Supply problems could result in delays in our ability to meet commitments to our customers and potentially result in delay damages assessed by our customers. We believe that sources of supply for raw materials and components are generally sufficient, and we do not believe a temporary shortage of materials will cause any significant adverse impact in the future.
We believe that sources of supply for raw materials and components are generally sufficient, and we do not believe a temporary shortage of materials will cause any significant adverse impact to our business and results of operations in the future.
While the cost outlook for commodities used in the production of our products is not certain, we believe we can manage this volatility through contract pricing adjustments, with material-cost predictive estimating, hedging and by actively pursuing internal cost reduction efforts. During Fiscal 2022, we entered into a derivative contract to hedge a portion of our exposure to commodity price risk.
While the cost outlook for commodities used in the production of our products is not certain, we believe we can manage this volatility through contract pricing adjustments, with material-cost predictive estimating, hedging and by actively pursuing internal cost reduction efforts. Our supply base for certain key components and raw materials is limited.
We believe the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business. From time to time, an individual manufacturing facility may have significant volume from one particular customer that would be material to that facility.
Due to the nature and timing of large projects, a significant percentage of our revenues in a given period may result from one specific contract or customer. We believe the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business.
Our backlog at September 30, 2022 totaled $592.2 million compared to $414.9 million at September 30, 2021. We anticipate that approximately $375.0 million of Fiscal 2022 ending backlog will be fulfilled during our fiscal year ending September 30, 2023.
We anticipate that approximately $648 million of Fiscal 2023 ending backlog will be fulfilled during our fiscal year ending September 30, 2024.
Within the downstream market, our primary customers typically are engaged in refining activities and/or leveraging natural gas feedstocks for the production of petrochemical or LNG products. Strong relationships have developed with our customers over the years and we are recognized as a preferred service provider to solve our customers' complex electrical needs.
Strong relationships have developed with our customers over the years and we are recognized as a preferred service provider to solve our customers' complex electrical needs. One element of our strategic focus is to strengthen our project portfolio beyond our core oil, gas and petrochemical markets.
These products are designed for application voltages ranging from 480 volts to 38,000 volts and are used in oil and gas refining, onshore and offshore oil and gas production, petrochemical, liquefied natural gas (LNG) terminals, pipeline, terminal, mining and metals, light rail traction power, electric utility, pulp and paper and other municipal, commercial and other industrial markets.
We are headquartered in Houston, Texas and serve the oil and gas and petrochemical markets, which include onshore and offshore production, liquefied natural gas (LNG) facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility, light rail traction power as well as mining and metals, pulp and paper, data centers and other municipal, commercial and industrial markets.
As we address disruptions, delays and increased costs, we continue to work with our suppliers of key components and commodities to ensure that we are able to meet our customer commitments.
We have experienced supply chain disruptions driven predominately by availability and cost volatility across our raw materials, engineered components and labor force. As our procurement function seeks to address specific supply chain challenges, we continue working with our suppliers of key components and commodities to meet our customer commitments.
Removed
Due to the nature and timing of large projects, a significant percentage of our revenues in a given period may result from one specific contract or customer. The large domestic industrial project that was awarded in Fiscal 2020 accounted for approximately 15% and 20% of our consolidated revenues in Fiscal 2022 and 2021, respectively.
Added
Within the downstream market, our primary customers typically are engaged in refining activities and/or leveraging natural gas feedstocks for the production of petrochemical or LNG products. The North American market is responding to increased international demand for LNG and gas-to-chemical processes utilizing low-cost gas feedstocks.
Removed
Material costs represented 51% of revenues in Fiscal 2022, 49% of revenues in Fiscal 2021 and 47% of revenues in Fiscal 2020.
Added
Diversification efforts outside of our core oil, gas and petrochemical markets have resulted in an increase in backlog across the utility and commercial and other industrial markets.
Removed
Our business is subject to the effects of changing material prices. During Fiscal 2021 and 2022, we began to encounter availability constraints from key suppliers as well as cost increases driven by using alternate suppliers, increased commodity costs as well as higher logistics expense. Supply chain disruptions driven by both availability and cost volatility have created project delivery challenges.
Added
Our backlog at September 30, 2023 totaled $1.3 billion compared to $592.2 million at September 30, 2022. The increase in our backlog is across all of our end markets, and particularly driven by our core oil, gas and petrochemical markets.
Removed
We continue to monitor material availability closely but cannot provide assurance that we will mitigate material shortages in the future, in which case our results of operations may be adversely affected.
Added
The equipment and materials that we use in our business are subject to availability and price fluctuations due to customer demand, producer capacity and market conditions. Uncertainty and demand disruptions have, in the past, resulted in considerable volatility across commodity markets.
Removed
We did not enter into any derivative contracts to hedge our exposure to commodity price changes in Fiscal 2021 or 2020.
Added
Additionally, we have adjusted our product pricing with our customers in response to the increased cost environment which has made a positive impact on our gross margins in Fiscal 2023.
Added
Supply problems could result in delays in our ability to meet commitments to our customers and potentially result in delay damages assessed by our customers.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

48 edited+19 added−9 removed81 unchanged
Biggest changeDuring Fiscal 2022, approximately 15% of our consolidated revenues were generated from our large domestic industrial project that was awarded in Fiscal 2020. We believe the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business.
Biggest changeWe believe the reduction in business volume from a particular industry or the loss of a major customer could have an adverse effect on our business. From time to time, one of our manufacturing facilities may have significant volume from one particular customer or industry that would be material to that facility.
Acts of misconduct, or our failure to comply with applicable laws or regulations, could subject us to fines and penalties, harm our reputation, damage our relationships with customers and could adversely impact our business and results of operations.
Acts of misconduct, or our failure to comply with applicable laws or regulations, could subject us to fines and penalties, harm our reputation, and/or damage our relationships with customers and could adversely impact our business and results of operations.
Unanticipated shortages in raw material and components, rising prices due to overall inflationary pressure, the imposition of tariffs, changes in supplier availability, delays in transportation, or supplier consolidation could increase production costs or lead times and adversely affect profitability as fixed-price contracts may prohibit our ability to charge the customer for the increase in raw material prices.
Unanticipated shortages in raw material and components, rising prices due to overall inflationary pressure, the imposition of tariffs, changes in supplier availability, delays in production or transportation, or supplier consolidation could increase production costs or lead times and adversely affect profitability as fixed-price contracts may prohibit our ability to charge the customer for the increase in raw material prices.
Among other things, the occurrence of an event of default could limit our ability to pay dividends, issue letters of credit, obtain additional financing or result in acceleration of outstanding amounts under the credit agreement or a termination of the agreement, any of which could have an adverse impact on our liquidity, business and results of operations.
Among other things, the occurrence of an event of default could limit our ability to pay dividends, issue letters of credit, or obtain additional financing or result in acceleration of outstanding amounts under the credit agreement or a termination of the agreement, any of which could have an adverse impact on our liquidity, business and results of operations.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which requires, among other things, an assessment by our management of our internal control over financial reporting. Preparing our financial statements involves a number of complex processes, many of which are performed manually and are dependent upon individual data input or review.
We are required to comply with Section 404 of the Sarbanes-Oxley Act of 2002, which requires, among other things, an assessment by our management of our internal control over financial reporting. Preparing our financial statements involves a number of complex processes, many of which are performed manually and dependent upon individual data input or review.
The declaration, amount and timing of future dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and are in compliance with all respective laws and applicable agreements.
The declaration, amount and timing of future dividends are subject to capital availability and determinations by our Board of Directors that cash dividends are in the best interest of our stockholders and in compliance with all respective laws and applicable agreements.
It is possible for competitors (both domestic and international) to develop products or production methods that will make current products or methods obsolete or at a minimum hasten their obsolescence; therefore, we cannot 7 be certain that our competitors will not develop the expertise, experience and resources to provide products and services that are superior in both price and quality.
It is possible for competitors (both domestic and international) to develop products or production methods that will make current products or methods obsolete or at a minimum hasten their obsolescence; therefore, we cannot be certain that our competitors will not develop the expertise, experience and resources to provide products and services that are superior in both price and quality.
The restriction, reduction or termination of our surety bond agreements could limit our ability to bid on new opportunities and would require us to issue letters of credit under our bank facilities in lieu of surety bonds, thereby reducing availability under our credit facility, which could have an adverse impact on our business and results of operations.
The restriction, reduction or termination of our surety bond agreements could limit our ability to bid on new opportunities and would require us to issue letters of credit under our bank facilities in lieu of surety bonds, thereby reducing availability under our credit facility, which could have an adverse impact on our liquidity, business and results of operations.
Any of these factors could adversely impact our business and results of operations. 11 A significant portion of our revenues may be concentrated among a small number of customers. Due to the nature and timing of large projects, a significant percentage of our revenues in a given period may result from one specific contract or customer.
Any of these factors could adversely impact our business and results of operations. 11 A significant portion of our revenues may be concentrated among a small number of customers. Due to the nature and timing of large projects, a significant percentage of our revenues in a given period may result from one specific contract, customer or industry.
Losses arising from such events may or may not be fully covered by our various insurance policies or may be subject to deductibles or exceed coverage limits. 14 Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results.
Losses arising from such events may or may not be fully covered by our various insurance policies or may be subject to deductibles or exceed coverage limits. Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results.
Additionally, increased attention to climate change, conservation measures, energy transition and consumer demand for alternatives to hydrocarbons could reduce the demand for oil and gas and have an adverse impact on demand for the products produced by our customers and therefore reduce demand for our products, which could adversely impact our business and results of operations.
Additionally, increased attention to climate change, conservation measures, energy transition and consumer demand for alternatives to hydrocarbons could reduce the demand for oil and gas applications and have an adverse impact on the demand for the products produced by our customers and therefore reduce demand for our products, which could adversely impact our business and results of operations.
These provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our Board of Directors. Significant developments arising from tariffs and other economic proposals could adversely impact our business.
These provisions may frustrate or prevent any attempt by our stockholders to replace or remove our current management by making it more difficult to replace or remove our Board of Directors. 13 Significant developments arising from tariffs and other economic proposals could adversely impact our business.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires disclosure of use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries and our efforts to prevent the use of such minerals. In our industry, 13 conflict minerals are most commonly found in metals.
The Dodd-Frank Wall Street Reform and Consumer Protection Act requires disclosure of use of "conflict" minerals mined from the Democratic Republic of Congo and adjoining countries and our efforts to prevent the use of such minerals. In our industry, conflict minerals are most commonly found in metals.
Many of our customer contracts have schedule and performance obligation clauses that, if we fail to meet, could subject us to penalty provisions, liquidated damages or claims against the company or our outstanding letters of credit or performance bonds. In addition, some customer contracts stipulate protection against our gross negligence or willful misconduct.
Many of our customer contracts have schedule and performance obligation clauses that, if we fail to meet, could subject us to penalty provisions, liquidated damages or claims against us, or our outstanding letters of credit or performance bonds. In addition, some customer contracts stipulate protection against our gross negligence or willful misconduct.
Our stock price could fluctuate or decline due to a variety of factors including, but not limited to, the risk factors described herein, declines in the overall financial and economic outlook, timing and cancellation of projects, changes in our estimated costs to complete projects, investors' opinions of the sectors and markets in which we operate or failure of our operating results to meet the expectations of securities analysts or investors, which could reduce investor confidence.
Our stock price could fluctuate or decline due to a variety of factors including, but not limited to, the risk factors described herein, declines in the overall financial and economic outlook, timing and cancellation of projects, declines in new orders or backlog, changes in our estimated costs to complete projects, investors' opinions of the sectors and markets in which we operate or failure of our operating results to meet the expectations of securities analysts or investors, which could reduce investor confidence.
Companies that we acquire may not achieve revenues, profitability or cash flows that we expected, or that ultimately justify the investment. It is possible that impairment charges resulting from the overpayment for an acquisition may negatively impact our results of operations.
Companies that we acquire may not achieve revenues, profitability or cash flows that we expect, or that ultimately justify the investment. It is possible that impairment charges resulting from the overpayment for an acquisition may negatively impact our results of operations.
Our payment arrangements subject us to potential credit risk related to changes in business and economic factors affecting our customers, including material changes in our customers' revenues or cash flows.
Our payment arrangements subject us to potential credit risk related to changes in business, financial markets and economic factors affecting our customers, including material changes in our customers' revenues or cash flows.
These regulations cover several areas including environmental compliance, import and export controls, economic sanctions, data and privacy protection, transfer pricing rules, anti-bribery, anti-trafficking and anti-trust provisions. These laws and regulations are administered by various state, federal and international agencies.
These regulations cover several areas including environmental, social and governance (ESG) compliance, import and export controls, economic sanctions, data and privacy protection, transfer pricing rules, anti-bribery, anti-trafficking and anti-trust provisions. These laws and regulations are administered by various state, federal and international agencies.
Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations. Revenues associated with projects located outside of the U.S., including revenues generated from our operations in the U.K. and Canada, accounted for approximately 24% of our consolidated revenues in Fiscal 2022.
Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations. Revenues associated with projects located outside of the U.S., including revenues generated from our operations in the U.K. and Canada, accounted for approximately 20% of our consolidated revenues in Fiscal 2023.
If one or more of our suppliers or subcontractors experiences difficulties that result in a reduction, delay or interruption in supply to us, or they fail to meet our manufacturing requirements, our business could be adversely impacted until we are able to secure alternative sources.
If one or more of our suppliers or subcontractors experiences difficulties that result in a reduction, delay or interruption in supply to us, or they fail to meet our manufacturing requirements, our business could be adversely impacted, and we may incur delay damages until we are able to secure alternative sources.
This could negatively impact our ability to manufacture our products if the relationships change or become unfavorable and could have an adverse impact on our results of operations. We have chosen to mitigate our inventory risks by increasing the levels of inventory for certain key components and raw materials and entering into commodity hedges when appropriate.
This could result in damages and negatively impact our ability to manufacture our products if the relationships change or become unfavorable and could have an adverse impact on our results of operations. We typically mitigate our inventory risks by increasing the levels of inventory for certain key components and raw materials and entering into commodity hedges when appropriate.
We may be unable to recover certain costs and cancelled or suspended projects may also result in additional unrecoverable costs due to the underutilization of our assets and personnel.
We may be unable to recover certain costs and an anticipated margin, and cancelled or suspended projects may also result in additional unrecoverable costs due to the underutilization of our assets and personnel.
If we are unable to collect amounts owed to us, or retain amounts paid to us, our cash flows would be reduced, and we could experience losses if those amounts exceed current allowances.
If we are unable to collect amounts owed to us, or retain amounts paid to us, our cash flows would be adversely impacted, and we could experience losses if those amounts exceed current allowances.
Similarly, disruptions in the capital markets may also adversely impact our customer's ability to finance projects, which could result in contract cancellations or delays. These disruptions could lead to reduced demand for our products and services and could have an adverse impact on our business, financial condition and results of operations.
Similarly, disruptions in the capital markets or increased interest rates may also adversely impact our customer's ability to finance projects, which could result in contract cancellations or delays. These disruptions could lead to reduced demand for our products and services and cancellation of existing projects, and could have an adverse impact on our business, financial condition and results of operations.
These laws and regulations may also increase our raw materials cost from our suppliers. The potential for future environmental, social and governance (ESG) and climate risk reporting requirements may result in additional costs to monitor, track and report sustainability measures.
These laws and regulations may also increase the cost of raw materials from our suppliers. The potential for future ESG and climate risk reporting requirements may result in additional costs to monitor, track and report sustainability measures.
Some of the third parties we engage in support of our operations operate internationally and thus we may be impacted by the 8 economic, political and labor conditions in those regions as well as uncertainty caused from international relations issues between the United States and those countries. Any of these factors could adversely impact our business and results of operations.
Some of the third parties we engage in support of our operations operate internationally and thus we may be impacted by the economic, political and labor conditions in those regions as well as uncertainty caused by international relations issues between the U.S. and those countries. Any of these factors could adversely impact our business and results of operations.
The occurrence of catastrophic events, ranging from natural disasters and extreme weather conditions to health epidemics (including the COVID-19 pandemic and any new variants), to acts of war and terrorism, among others, could increase operating costs, disrupt or delay our ability to operate our business and complete projects for our customers and could potentially expose us to third-party liability claims or delay damages under our contracts.
The occurrence of catastrophic events, ranging from natural disasters and extreme weather conditions to health epidemics, to acts of war and terrorism, among others, could increase operating costs and/or disrupt or delay our ability to operate our business and complete projects for our customers and could potentially expose us to third-party liability claims or delay damages under our contracts.
Various factors drive demand for our products and services, including the price and demand for oil and gas, capital expenditures, economic forecasts, global political environments (including war and terrorism) and financial markets.
Various factors drive demand for our products and services, including the price and demand for oil and gas, capital expenditures, economic forecasts, global political environments (including war and terrorism) and the cost of capital.
A poor safety record can harm our reputation with existing and potential customers, jeopardize our relationship with employees, increase our insurance and operating costs and could adversely impact our business and results of operations. Catastrophic events, including natural disasters, health epidemics (including the COVID-19 pandemic and any new variants), acts of war and terrorism, among others, could disrupt our business.
A poor safety record can harm our reputation with existing and potential customers, jeopardize our relationship with employees, increase our insurance and operating costs and could adversely impact our business and results of operations. Catastrophic events, including natural disasters, health epidemics, acts of war and terrorism, among others, could disrupt our business.
In addition, we may not be able to continue to obtain insurance at commercially reasonable rates, or at the policy limits we may require or may be faced with liabilities not covered by insurance, such as, but not limited to, cyber security, environmental contamination or terrorist attacks.
In addition, we may not be able to continue to obtain insurance at commercially reasonable rates, or at the policy limits we may require or may be faced with liabilities not covered by insurance, such as, but not limited to, cybersecurity, environmental contamination, acts of war or terrorist attacks.
Such increased inventory levels may increase the potential for excess and obsolete inventories. Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances, may be necessary for us to successfully bid on and obtain certain contracts.
Such increased inventory levels may not be adequate to meet future demand and may increase the potential for excess and obsolete inventories, which could have an adverse impact on our business and results of operations. Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances may be necessary for us to successfully bid on and obtain certain contracts.
Our ability to declare and pay dividends will depend upon, among other factors, our financial condition, results of operations, cash flows, current and anticipated expansion plans, requirements under Delaware law and other factors that our Board of Directors may deem relevant. A reduction in or elimination of our dividend payments could have a material negative effect on our stock price.
Our ability to declare, increase or pay dividends will depend upon, among other factors, our financial condition, results of operations, cash flows, current and anticipated expansion plans, requirements under Delaware law and other factors that our Board of Directors may deem relevant.
Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment. From time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us.
From time to time, we may be a plaintiff in legal proceedings against customers in which we seek to recover payment of contractual amounts due to us, as well as claims for increased costs incurred by us.
Our material costs represented 51% of our consolidated revenues for Fiscal 2022.
Our material costs represented 49% of our consolidated revenues for Fiscal 2023.
General Risk Factors Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. We could be named as a defendant in legal proceedings that claim damages in connection with the operation of our business.
Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition. We could be named as a defendant in legal proceedings that claim damages in connection with the operation of our business. Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment.
Risk Factors Related to Legal and Regulatory Matters Our operations could be adversely impacted by the effects of government regulations. We are subject to various government regulations in the United States as well as various international locations where we operate.
A reduction in or elimination of our dividend payments could have a material negative effect on our stock price. Risk Factors Related to Legal and Regulatory Matters Our operations could be adversely impacted by the effects of government regulations. We are subject to various government regulations in the U.S. as well as various international locations where we operate.
Our failure to maintain effective internal controls over financial reporting could adversely affect our ability to report our financial results on a timely and accurate basis, which could result in a loss of investor confidence in our financial reports, a decline in our stock price or have an adverse impact on our business and results of operations. 12 A failure in our business systems or cyber security attacks on any of our facilities, or those of third parties, could adversely affect our business and our internal controls.
Our failure to maintain effective internal controls over financial reporting could adversely affect our ability to report our financial results on a timely and accurate basis, which could result in a loss of investor confidence in our financial reports or a decline in our stock price, or have an adverse impact on our business and results of operations. 12 Risk Factors Related to our Common Stock Our stock price could decline or fluctuate significantly due to unforeseen circumstances that may be outside of our control.
From time to time, projects are cancelled, delayed or modified due to customer, industry or macroeconomic conditions. While we may be reimbursed for certain costs, we may not have a contractual right to the total revenue reflected in our backlog.
While we may be reimbursed for certain costs, we may not have a contractual right to the total revenue reflected in our backlog.
Competition in the industry depends on a number of factors, including the number of projects available, technical ability, production capacity, location and the ability to win projects we bid. Certain of our competitors may have lower cost structures or a more favorable geographic footprint and may, therefore, be able to provide their products or services at lower prices.
Certain of our competitors may have lower cost structures or a more favorable geographic footprint and may, therefore, be able to provide their products or services at lower prices.
All of the products that we manufacture and sell depend upon optimizing available technology for success in the marketplace. The industries in which we operate are characterized by intense competition and are highly sensitive to technological innovation and customer requirements.
The industries in which we operate are characterized by intense competition and are highly sensitive to technological innovation and customer requirements.
Our backlog is subject to unexpected adjustments, cancellations and scope reductions and, therefore, may not be a reliable indicator of our future earnings. We have a backlog of uncompleted contracts. Backlog represents management's best estimate of the remaining performance obligation from work to be performed on uncompleted contracts, including new contractual agreements on which work has not begun.
Our backlog is subject to unexpected adjustments, cancellations and scope reductions and, therefore, may not be a reliable indicator of our future earnings. We have a backlog of uncompleted contracts.
Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult to change management. Because we are governed by Delaware law, we are subject to the provisions of Section 203 of the Delaware General Corporation Law.
Also, we may face challenges with our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are "conflict-free." Provisions of our charter documents or Delaware law could delay or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and could make it more difficult to change management.
We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks. Although we maintain insurance policies with respect to our related exposures, including certain casualty, property, professional, business interruption, cyber security and self-insured medical and dental programs, these policies contain deductibles, self-insured retentions and limits of coverage.
Although we maintain insurance policies with respect to our estimated exposures, including certain casualty, property, professional, employee liability, business interruption, cybersecurity and self-insured medical programs, these policies contain deductibles, self-insured retentions and limits of coverage.
Any failure to successfully complete or successfully integrate acquisitions could have a material adverse effect on our business and results of operations. Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees.
Our failure to compete effectively and secure projects could adversely affect future revenues and could have an adverse impact on our business and results of operations. 7 Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees.
From time to time, an individual manufacturing facility may have significant volume from one particular customer that would be material to that facility. If during that time the customer were to experience financial distress, a decline in business or circumstances that would otherwise necessitate a cancellation of a project with us, our revenue could be adversely impacted.
If during that time the customer were to experience financial distress, a decline in business or circumstances that would otherwise necessitate a cancellation of a project with us, our revenue and results of operations could be adversely impacted. We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks.
Labor shortages or increased labor costs could impair our ability to maintain our business, meet customer commitments or grow our revenues, and could adversely impact our business and results of operations. We are exposed to risks relating to the use of subcontractors.
Labor shortages or increased labor costs could impair our ability to maintain our business, meet customer commitments or grow our revenues, and could adversely impact our business and results of operations. Technological innovations may make existing products and production methods obsolete. All of the products that we manufacture and sell depend upon optimizing available technology for success in the marketplace.
New companies may enter the markets in which we compete, or industry consolidation may occur, further increasing competition in our markets. Our failure to compete effectively and secure projects could adversely affect future revenues and could have an adverse impact on our business and results of operations. Technological innovations may make existing products and production methods obsolete.
New companies may enter the markets in which we compete, or industry consolidation may occur, further increasing competition in our markets.
Each individual contract seeks to define the conditions under which the customer may make a claim against us.
Each individual contract seeks to define the conditions under which the customer may make a claim against us. Due to the growth in our backlog, our manufacturing and fabrication capacity as well as ability to recruit and retain qualified labor is challenged resulting in an increased risk of meeting delivery dates and other contract performance obligations.
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Our organization is dependent upon the proper functioning of our business systems that support our production, engineering, human resources, estimating, finance, and project management functions.
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Competition in the industry depends on a number of factors, including the number of projects available, technical ability, production capacity, production lead times, location and the ability to win projects we bid.
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If any of our financial, operational, or other data processing systems fail or have other significant shortcomings due to natural disaster, power loss, telecommunications failures, cyber security attacks or other similar events, our business or results of operations could be adversely affected.
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Any failure to successfully complete or successfully integrate acquisitions could have a material adverse effect on our business and results of operations. 8 We are exposed to risks relating to the use of subcontractors.
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In addition, despite implementation of security measures, our business systems may be vulnerable to computer viruses, ransomware attacks, cyber-attacks, social engineering, the accidental release of sensitive information and other unauthorized access.
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Backlog represents management's best estimate of the remaining performance obligation from work to be performed on our firm orders under uncompleted contracts and customer purchase orders, including approved change orders as well as new contractual agreements on which work has not begun. From time to time, projects are cancelled, delayed or modified due to customer, industry or macroeconomic conditions.
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These failures of our business systems or security breaches could impact our customers, employees and reputation and result in a disruption to our operations or in legal claims or proceedings. A material breach of our business systems could involve the theft of intellectual property, financial data, employee or customer data, which may be used by competitors.
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These fluctuations may cause our stockholders to incur losses.
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We rely on third-party systems which could suffer operational system failure, engineered social manipulation or cyber-attacks. Any of these occurrences may not be covered by insurance and could disrupt our business, result in potential liability or reputational damage or otherwise have an adverse effect on our business and results of operations.
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Because we are governed by Delaware law, we are subject to the provisions of Section 203 of the Delaware General Corporation Law.
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Certain network security and internal control measures have been implemented to address these risks and disruptions to our business.
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General Risk Factors A failure in our business systems or cybersecurity attacks on any of our facilities, or those of third parties, could adversely affect our business, results of operations and reputation. We rely on information technology systems, networks and infrastructure in managing our day-to-day operations.
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However, our portfolio of hardware and software products, solutions and services and information contained within our enterprise information technology (IT) systems may be vulnerable to damage or disruption caused by circumstances beyond our control such as catastrophic events, cyber-attacks, other malicious activities from unauthorized third parties, power outages, natural disasters, computer system or network failures, insider attacks or computer viruses.
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In the event of systems failure or interruption, including those related to force majeure, telecommunications failures, criminal acts, including hardware/software break-ins, extortion attempts, viruses, or other cybersecurity incidents, we may have limited ability to affect the timing and success of systems restoration, and any resulting interruption in our ability to manage or operate our business could have a material adverse effect on our operating results and reputation.
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Any significant disruption or failure could damage our reputation or have a material adverse effect on our business and our results of operations. Risk Factors Related to our Common Stock Our stock price could decline or fluctuate significantly due to unforeseen circumstances which may be outside of our control. These fluctuations may cause our stockholders to incur losses.
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Increased global information technology cybersecurity threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks, and the confidentiality, availability and integrity of our data and communications.
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Also, we may face challenges with our customers and suppliers if we are unable to sufficiently verify that the metals used in our products are "conflict-free." Changes in and compliance with environmental laws and regulations, including those regarding climate change, could adversely impact our financial results.
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While we attempt to mitigate these risks by employing a number of measures, including employee education, comprehensive monitoring of our networks and systems, and maintenance of backup and protective systems, our systems, networks and products remain potentially vulnerable to advanced persistent threats.
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Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information and communications, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations.
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We are continuously working to improve our information technology systems, together with creating security boundaries around our critical and sensitive assets. We provide security awareness education to our employees and contractors that focuses on various aspects of the cybersecurity world.
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All of these steps are taken in order to mitigate the risk of attack and to ensure our readiness to responsibly handle any security violation or attack. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures and our products could be harmed.
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We could lose potential projects and existing customers, our ability to operate our business could be impaired, we may incur significant liabilities, we could suffer harm to our reputation and competitive position, and our operating results could be negatively impacted.
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We utilize the National Institute of Standards and Technology Framework for Improving Critical Infrastructure Cybersecurity (NIST Framework), a toolkit for organizations to manage cybersecurity risk in its assessment of cybersecurity capabilities and in developing cybersecurity priorities.
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In addition to internal assessments, our cybersecurity strategy and capabilities are evaluated and audited against the NIST Framework and industry best practices by independent, third-party, leading specialists in cybersecurity. We strive to create a culture of cybersecurity resilience and awareness. This tone is set from the top and continuously reinforced with our employees and contractors through regular education and testing.
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We continue to mature our programs and invest in the security of our systems, operations, people, infrastructure, and cloud environments. The Board of Directors is briefed on our strategy and roadmap in alignment with NIST Cybersecurity Framework. The Board receives quarterly updates on program maturity, cybersecurity risks, threat landscape and overall program progress.
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While cybersecurity resilience is the responsibility of every employee and contractor, the cybersecurity program is led by the Chief Information Officer. The Information Technology Cybersecurity team meets regularly and reviews trending risks and remediation efforts. When necessary, we assign resources to mitigate and elevate risks to the enterprise level as part of our Enterprise Risk Management program.
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Any significant disruption or failure of our business systems and/or cybersecurity infrastructure could damage our reputation and have a material adverse effect on our business and results of operations. 14 Changes in and compliance with ESG initiatives could adversely impact our business. We strive to achieve ESG initiatives while maintaining the rights and interests of our employees and shareholders.
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There has been an increased focus on ESG matters by consumers, investors, as well as by governmental and non-governmental organizations. To the extent that our ESG initiatives are deemed to be insufficient by stakeholders, this could adversely impact our business, results of operations, stock price or competitive position.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeOur principal locations as of September 30, 2022, were as follows: Location Description Acres Approximate Square Footage Houston, TX Corporate office and manufacturing facility 21.4 428,515 Houston, TX Office and manufacturing facility 53.4 290,554 Houston, TX Office, fabrication facility, bulkhead and yard 62.4 82,320 North Canton, OH Office and manufacturing facility 8.0 115,200 Northlake, IL Office and manufacturing facility 10.0 103,500 Bradford, U.K.
Biggest changeOur principal locations as of September 30, 2023, were as follows: Location Description Acres Approximate Square Footage Houston, TX Corporate office and manufacturing facility 21.4 428,515 Houston, TX Office and manufacturing facility 53.4 290,554 Houston, TX Office, fabrication facility, bulkhead and yard 62.4 82,320 North Canton, OH Office and manufacturing facility 8.0 115,200 Northlake, IL Office and manufacturing facility 10.0 103,500 Bradford, U.K.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following graph compares, for the period from September 29, 2017 to September 30, 2022, the cumulative stockholder return on our common stock with the cumulative total return on the IShares Russell 2000, the Invesco S&P SmallCap 600 Energy, the new Industrial Electrical Equipment Group (a select group of peer companies – Altra Industrial Motion Corp.; Ameresco, Inc.; AZZ Inc.; Belden Inc.; Daktronics Inc.; EnerSys; Franklin Electric Co, Inc.; Gibraltar International (ROCK); Littelfuse Inc.; LSI Industries Inc.; Matthews International (MATW); Preformed Line Products; A O Smith Corporation; Thermon Group Holdings and Woodward, Inc.) and the old Industrial Electrical Equipment Group (Altra Industrial Motion Corp.; Ameresco, Inc.; AZZ Inc.; Belden Inc.; Daktronics Inc.; EnerSys; Franklin Electric Co, Inc.; Littelfuse Inc.; LSI Industries Inc.; Preformed Line Products; A O Smith Corporation; Thermon Group Holdings and Woodward, Inc.).
Biggest changeThe following graph compares, for the period from October 1, 2018 to September 30, 2023, the cumulative stockholder return on our common stock with the cumulative total return on the IShares Russell 2000, the Invesco S&P SmallCap 600 Energy, the new Industrial Electrical Equipment Group and the previous Industrial Electrical Equipment Group.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NASDAQ Global Market (NASDAQ) under the symbol “POWL.” Holders As of December 2, 2022, there were 245 stockholders of record of our common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Our common stock trades on the NASDAQ Global Market (NASDAQ) under the symbol “POWL.” Holders As of December 4, 2023, there were 240 stockholders of record of our common stock.
The comparison assumes that $100 was invested on September 29, 2017, in our common stock, the IShares Russell 2000, the Invesco S&P SmallCap 600 Energy, the new Industrial Electrical Equipment Group and the old Industrial Electrical Equipment Group, and that all dividends were re-invested.
The comparison assumes that $100 was invested on October 1, 2018, in our common stock, the IShares Russell 2000, the Invesco S&P SmallCap 600 Energy, the new Industrial Electrical Equipment Group and the previous Industrial Electrical Equipment Group, and that all dividends were re-invested.
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In our Form 10-K for the fiscal year ended September 30, 2022, the performance graph included a peer index (the "previous Industrial Electrical Equipment Group") composed of Altra Industrial Motion Corp.; Ameresco, Inc.; AZZ Inc.; Belden Inc.; Daktronics Inc.; EnerSys; Franklin Electric Co, Inc.; Gibraltar Industries, Inc.; LittelFuse Inc.; LSI Industries Inc.; Matthews International Corporation; Preformed Line Products Company; A.O.
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Smith Corporation; Thermon Group Holdings Inc. and Woodward, Inc. As a continuing effort to align our peer group with our industry, market capitalization, location and other factors, we have replaced Altra Industrial Motion Corp. with CECO Environmental. Accordingly, the new Industrial Electrical Equipment Group is composed of Ameresco, Inc.; A.O.
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Smith Corporation; AZZ Inc.; Belden Inc.; CECO Environmental; Daktronics Inc.; EnerSys; Franklin Electric Co, Inc.; Gibraltar Industries, Inc.; LittelFuse Inc.; LSI Industries Inc.; Matthews International Corporation; Preformed Line Products Company; Thermon Group Holdings Inc. and Woodward, Inc.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

45 edited+17 added−28 removed38 unchanged
Biggest changeThis decrease in cash flows used in operations was primarily due to the timing of contract billing milestones and an increase in accounts payable and accrued liabilities, although offset by the increase in accounts receivable and inventory safety stock levels to mitigate global supply chain risks. 22 Investing Activities Investing activities provided $6.5 million of cash during Fiscal 2022 compared to $2.5 million of cash used in Fiscal 2021.
Biggest changeThis increase in operating cash flow was primarily due to the increase in project volume and the favorable timing of contract billing milestones, although partially offset by the increases in accounts receivable and inventory. Inventory has increased to support our increased backlog and stock levels to help mitigate global supply chain risks.
Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes which affect the manner in which our customers proceed with capital investments. Our customers analyze various factors, including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns.
Cyclicality is predominantly driven by customer demand, global economic and geopolitical conditions and anticipated environmental, safety or regulatory changes that affect the manner in which our customers proceed with capital investments. Our customers analyze various factors, including the demand and price for oil, gas and electrical energy, the overall economic and financial environment, governmental budgets, regulatory actions and environmental concerns.
Surety bonds are primarily used to guarantee our contract performance to our customers. Off-Balance Sheet Arrangements We had no significant off-balance sheet arrangements during the periods presented. Effects of Inflation We are subject to inflation, which can cause increases in our costs of labor, indirect expenses and raw materials, primarily copper, aluminum and steel.
Surety bonds are primarily used to guarantee our contract performance to our customers. Off-Balance Sheet Arrangements We had no significant off-balance sheet arrangements during the periods presented. 22 Effects of Inflation We are subject to inflation, which can cause increases in our costs of labor, indirect expenses and raw materials, primarily copper, aluminum and steel.
These products may be sold separately as an engineered solution, but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room 23 substations (PCRs®), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and the commissioning of these enclosures.
These products may be sold separately as an engineered solution, but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and commissioning of these enclosures.
Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation. 24 Impairment of Long-Lived Assets We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be realizable.
Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation. Impairment of Long-Lived Assets We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value may not be realizable.
Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. See Note E of Notes to Consolidated Financial Statements for disclosures related to changes in contract estimates.
Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed 23 estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period. See Note E of Notes to Consolidated Financial Statements for disclosures related to changes in contract estimates.
Variations in the actual outcome of these future tax consequences could materially impact our financial position and results of operations. 25 See Note I of Notes to Consolidated Financial Statements for disclosures related to the valuation allowance recorded in relation to deferred taxes.
Variations in the actual outcome of these future tax consequences could materially impact our financial position and results of operations. See Note I of Notes to Consolidated Financial Statements for disclosures related to the valuation allowance recorded in relation to deferred taxes.
We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.
We are required to maintain certain financial covenants, the most significant of which are a 21 consolidated net leverage ratio of less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0.
We are headquartered in Houston, Texas, and serve the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and other industrial markets.
We are headquartered in Houston, Texas and serve the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility, light rail traction power as well as mining and metals, pulp and paper, data centers and other municipal, commercial and industrial markets.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the twelve months ended September 30, 2022 compared to the twelve months ended September 30, 2021 should be read in conjunction with the accompanying consolidated financial statements and related notes.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of our financial condition and results of operations for the twelve months ended September 30, 2023 compared to the twelve months ended September 30, 2022 should be read in conjunction with the accompanying consolidated financial statements and related notes.
Contract Estimates Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based upon the professional knowledge and experience of our engineers, project managers and financial professionals.
Contract Estimates Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based on the professional knowledge and experience of our engineers, project managers and financial professionals.
Overview We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.
Overview We develop, design, manufacture and service custom-engineered equipment and systems that (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment.
In Fiscal 2022, the tax benefit primarily resulted from the release of the valuation allowance previously recorded against the Canadian net deferred tax assets in the amount of $5.9 million and the estimated Research and Development Tax Credit (R&D Tax Credit).
In Fiscal 2022, the tax benefit primarily resulted from the release of the valuation allowance previously recorded against the Canadian net deferred tax assets in the amount of $5.9 million and the estimated R&D Tax Credit.
Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders, project close-out and resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.
Our operating results also have been, and may continue to be, impacted by the timing and resolution of change orders and the resolution of potential contract claims and liquidated damages, all of which could improve or deteriorate gross margins during the period in which these items are resolved with our customers.
The effect of any impairment would be reflected in income (loss) from operations in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles and periodically review these estimates to determine whether these lives are appropriate.
The effect of any impairment would be reflected in operating income in the Consolidated Statements of Operations. In addition, we estimate the useful lives of our long-lived assets and other intangibles, and periodically review these estimates to determine whether these lives are appropriate.
Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended September 30, 2021, filed on December 8, 2021, for discussion of the fiscal year ended September 30, 2020, the earliest of the three fiscal years presented.
Management's Discussion and Analysis of Financial Condition and Results of Operations located in our Form 10-K for the fiscal year ended September 30, 2022, filed on December 6, 2022, for discussion of the fiscal year ended September 30, 2021, the earliest of the three fiscal years presented.
Our operating results are impacted by factors such as the timing of new order awards, customer approval of final engineering and design specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.
Our operating results are impacted by several factors such as the timing of new order awards, project backlog, changes in project cost estimates, customer approval of final engineering specifications and delays in customer construction schedules, all of which contribute to short-term earnings variability and the timing of project execution.
Financing Activities Net cash used in financing activities was $13.3 million in Fiscal 2022 and $13.2 million during the same period in Fiscal 2021, which primarily consisted of approximately $12.2 million and $12.1 million of dividends paid in the respective years.
Financing Activities Net cash used in financing activities was $13.1 million during Fiscal 2023 compared to $13.3 million during Fiscal 2022, which primarily consisted of approximately $12.4 million and $12.2 million of dividends paid in the respective years.
Revolver states that up to $30 million may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness which is a component of the consolidated net leverage ratio.
Revolver states the lesser of $50 million or 50% of available cash may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness, which is a component of the consolidated net leverage ratio.
Other Commercial Commitments We are contingently liable for letters of credit and bank guarantees totaling $39.7 million as of September 30, 2022, with the following potential cash outflows in the event that we are unable to perform under our contracts (in thousands): Payments Due by Period: Letters of Credit/Bank Guarantees Less than 1 year $ 8,807 1 to 3 years 24,294 More than 3 years 6,648 Total long-term commercial obligations $ 39,749 We also had surety bonds totaling $241.0 million that were outstanding at September 30, 2022.
Other Commercial Commitments We are contingently liable for letters of credit and bank guarantees totaling $96.7 million as of September 30, 2023, with the following potential cash outflows in the event that we are unable to perform under our contracts (in thousands): Payments Due by Period: Letters of Credit/ Bank Guarantees Less than 1 year $ 48,459 1 to 3 years 33,711 More than 3 years 14,511 Total long-term commercial obligations $ 96,681 We also had surety bonds totaling $393.4 million that were outstanding at September 30, 2023.
Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the level of capital expenditures of our end-user customers as well as prevailing global economic conditions.
Within the industrial sector, specifically oil, gas and petrochemical, the demand for our electrical distribution solutions is very cyclical and closely correlated to the level of capital expenditures of our end-user customers as well as prevailing global economic conditions. The North American market is responding to increased international demand for LNG and gas-to-chemical processes utilizing low-cost gas feedstocks.
In the event that we elect to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., we may incur additional tax expense upon such repatriation under current tax laws. Operating Activities Operating activities used net cash of $3.6 million in Fiscal 2022 and $30.5 million in Fiscal 2021.
In the event that we elect to repatriate some or all of the foreign earnings that were previously deemed to be indefinitely reinvested outside the U.S., we may incur additional tax expense upon such repatriation under current tax laws.
Critical Accounting Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities known to exist at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Commercial and other industrial market revenue increased by 109%, or $29.4 million, to $56.5 million driven by an increase in traditionally non-core markets such as data centers, university projects and other miscellaneous applications. Revenue from all other markets combined increased by $0.6 million to $27.1 million in Fiscal 2022.
Commercial and other industrial market revenue increased by 84%, or $47.5 million, to $104.0 million driven by an increase in traditionally non-core markets such as data centers, university projects and other miscellaneous applications. Revenue from all other markets combined increased by $14.5 million to $41.5 million in Fiscal 2023.
We believe that our strong working capital position, available borrowings under our credit facility and available cash should be sufficient to finance future operating activities, capital improvements and research and development initiatives for the foreseeable future. We have a credit agreement with Bank of America, N.A. (the U.S.
We believe that our strong working capital position, available borrowings under our credit facility and available cash and cash equivalents should be sufficient to support our future operating activities, capital improvements and research and development initiatives for the foreseeable future.
Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the associated working capital requirements, as well as payment terms with our suppliers.
Operating Activities Operating activities provided net cash of $182.6 million during Fiscal 2023 and used net cash of $3.6 million during Fiscal 2022. Cash flow from operations is primarily influenced by the timing of milestone payments from our customers, project volume and the associated working capital requirements, as well as payment terms with our suppliers.
Net Income In Fiscal 2022, we recorded net income of $13.7 million, or $1.15 per diluted share, compared to net income of $0.6 million, or $0.05 per diluted share in Fiscal 2021.
Net Income In Fiscal 2023, we recorded net income of $54.5 million, or $4.50 per diluted share, compared to net income of $13.7 million, or $1.15 per diluted share in Fiscal 2022.
Projects may require, on occasion, warranty terms that are longer than our standard terms due to the nature of the project. Extended warranty terms may be negotiated and included in our contracts. The allocated revenue associated with the extended warranty is deferred and recorded as a contract liability and recognized as revenue over the extended warranty period.
Projects may require, on occasion, warranty terms that are longer than our standard terms due to the nature of the project. Extended warranty terms may be negotiated and included in our contracts.
Selling, general and administrative expenses, as a percentage of revenues, decreased to 13% in Fiscal 2022, compared to 14% in Fiscal 2021, primarily due to the ability to leverage our cost structure with the increase in revenues. 20 Other Income During Fiscal 2022 we recorded other income of $2.3 million related to a gain on the sale of a small, non-core, industrial valve repair and servicing business within our Canadian operations as well as the sale of an excess parcel of land in the U.S.
Other Income During Fiscal 2022 we recorded other income of $2.3 million related to a gain on the sale of a small, non-core, industrial valve repair and servicing business within our Canadian operations as well as the sale of an excess parcel of land in the U.S. We did not record other income in Fiscal 2023.
Accounting for Income Taxes We account for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted, and income is earned.
The allocated revenue associated with the extended warranty is deferred and recorded as a contract liability and recognized as revenue over the extended warranty period. 24 Accounting for Income Taxes We account for income taxes under the asset and liability method, based on the income tax laws and rates in the countries in which operations are conducted, and income is earned.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 5%, or $3.6 million, to $70.8 million in Fiscal 2022, primarily due to increased variable performance based compensation.
Additionally, project cancellations contributed $4.3 million to gross profit in Fiscal 2023. Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 11%, or $8.0 million, to $78.8 million in Fiscal 2023, primarily due to increased variable performance-based compensation.
We did not record other income in Fiscal 2021. Income Tax Provision (Benefit) We recorded an income tax benefit of $3.9 million in Fiscal 2022, resulting in an effective tax rate of negative 40%, compared to an income tax provision of $0.5 million in Fiscal 2021 at an effective tax rate of 42%.
Income Tax Provision (Benefit) We recorded an income tax provision of $14.4 million in Fiscal 2023, resulting in an effective tax rate of 21%, compared to an income tax benefit of $3.9 million in Fiscal 2022 at an effective tax rate of negative 40%. In Fiscal 2023, the effective tax rate approximated the U.S. federal statutory rate.
As of September 30, 2022, there were no amounts borrowed under the U.S. Revolver, and letters of credit outstanding were $36.7 million. As of September 30, 2022, $38.3 million was available for the issuance of letters of credit and borrowing under the U.S. Revolver.
There was $35.9 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of September 30, 2023.
Additionally, we have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio. On October 1, 2021, our industrial development revenue bonds matured and as a result we had no long-term debt at September 30, 2022.
We have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio. As of September 30, 2023, there were no amounts borrowed under the U.S. Revolver, and letters of credit outstanding were $89.1 million.
Disruption in the global supply chain has negatively impacted our business and operating results as well due to the reduction in availability and uncertainty in the timing of the receipt of certain key component parts and commodities.
Disruptions in the global supply chain have, in the past, negatively impacted our business and operating results due to the limited availability resulting in uncertainty in the timing of the receipt of key component parts and commodities. We continue to remain focused on the variables that impact our markets as well as cost management, labor availability and supply chain challenges.
It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital to support our international operations.
Approximately $57.4 million of our cash, cash equivalents and short-term investments at September 30, 2023 was held outside of the U.S. for our international operations. It is our intention to indefinitely reinvest all current and future foreign earnings internationally in order to ensure sufficient working capital to support our international operations.
Cash, cash equivalents and short-term investments decreased to $116.5 million at September 30, 2022, compared to $134.0 million at September 30, 2021.
Liquidity and Capital Resources As of September 30, 2023, current assets exceeded current liabilities by 1.6 times. Cash, cash equivalents and short-term investments increased to $279.0 million at September 30, 2023, compared to $116.5 million at September 30, 2022.
All of these factors have contributed to the lower margins realized in Fiscal 2021 and 2022. As we address disruptions and increased costs, we continue to work with our suppliers of key components and commodities to ensure that we are able to meet our customer commitments.
All of these factors contributed to the lower margins realized in Fiscal 2022 relative to prior oil and gas cycles. Commodity prices have stabilized in Fiscal 2023; however, we continue to experience supply chain delays for specific engineered components and continue to work with our suppliers in order to meet our customer commitments.
Uncertainty and demand disruptions have resulted in considerable volatility across commodity markets. Although global oil prices have rebounded, our industrial end markets have responded with modest increases in capital expenditures. Additionally, we continue to experience supply chain disruptions driven predominately by availability and cost volatility across our raw materials, components and labor force.
Various factors resulting in global economic uncertainty negatively impacted our results over the previous two years. Uncertainty and demand disruptions resulted in considerable volatility across commodity markets. We experienced supply chain disruptions driven predominantly by availability and cost volatility across our raw materials, components and labor force.
Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.
Domestic revenues increased by 38%, or $153.0 million, to $557.9 million in Fiscal 2023. International revenues increased by 11%, or $13.8 million, to $141.4 million. Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.
Revenue from our core oil and gas markets (excluding petrochemical) increased by 15%, or $27.5 million, to $215.2 million while petrochemical revenue increased by 13%, or $7.6 million, to $66.5 million in Fiscal 2022, primarily due to increased market activity.
Revenue from our core oil and gas markets (excluding petrochemical) increased by 27%, or $57.9 million, to $273.1 million in Fiscal 2023, and petrochemical revenue increased by 42%, or $27.6 million, to $94.2 million in Fiscal 2023. Revenue from our utility end markets increased by 29%, or $36.0 million, to $158.4 million in Fiscal 2023.
Revolver) which is a $75.0 million revolving credit facility available for both borrowings and letters of credit and expires September 27, 2024. The U.S.
On March 31, 2023, we entered into a second amendment (the Second Amendment) to our credit agreement with Bank of America, N.A. (as amended, the U.S. Revolver). The Second Amendment increased the revolving credit facility, which is available for both borrowings and letters of credit from $75.0 million to $125.0 million. As amended by the Second Amendment, the U.S.
Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings. Inflation in commodity prices and general indirect expenses had a negative impact on our financial results in Fiscal 2022. Additionally, inflation related specifically to commodity and labor prices may potentially impact our operations in future years.
Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings and operations in future quarters and years. Critical Accounting Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.
The increase in cash provided by investing activities in Fiscal 2022 was primarily due to proceeds of $4.3 million received from the sale of a small, non-core division of our Canadian operations.
Investing Activities Investing activities used $26.6 million of cash during Fiscal 2023 compared to $6.5 million of cash provided in Fiscal 2022. The increase in cash used in investing activities during Fiscal 2023 was primarily due to the timing of cash used to purchase short-term investments.
Backlog The order backlog at September 30, 2022 was $592.2 million, a 43% increase from $414.9 million at September 30, 2021. Bookings, net of cancellations and scope reductions, increased by 78% in Fiscal 2022 to $718.6 million, compared to $403.9 million in Fiscal 2021.
This increase in net income is primarily due to the increase in bookings which led to an increase in revenues coupled with increased project margins. 20 Backlog The order backlog at September 30, 2023 was $1.3 billion, a 118% increase from $592.2 million at September 30, 2022.
Removed
Over the past few years, there has been an increase in capital spending within North America on LNG facilities as the market responds to the increased international demand for LNG.
Added
As a result, the business has been awarded a number of large LNG and petrochemical contracts that have had a positive impact on our backlog. One element of our strategic focus is to strengthen our project portfolio beyond our core oil, gas and petrochemical end market sectors.
Removed
As a result, the business was awarded a substantial contract in the second quarter of Fiscal 2020 that will support the integrated electrical distribution requirements for a large domestic LNG industrial complex that was substantially completed in Fiscal 2022. 19 Impact of Global Economic Uncertainty and Commodity Market Volatility on Powell Various factors resulting in global economic uncertainty have negatively impacted our results over the past two years.
Added
Diversification efforts outside of our core oil, gas and petrochemical end markets have resulted in an increase in backlog across the utility and commercial and other industrial sectors. Over the past year, these efforts have contributed to a strong backlog of projects coming into Fiscal 2023 and near record levels going into Fiscal 2024.
Removed
Additionally, we have adjusted our pricing models with our customers in response to the increased cost environment. In response to the lower demand and uncertainty across select end markets, we have taken and will continue to take various actions to maintain or reduce costs.
Added
Additionally, we have adjusted our product pricing, delivery schedules and bid validity dates with our customers in response to the increased cost environment and supply chain delays, and as a result our gross margins have been improved in Fiscal 2023. 19 Results of Operations Twelve Months Ended September 30, 2023 Compared to Twelve Months Ended September 30, 2022 Revenue and Gross Profit Revenues increased by 31%, or $166.7 million, to $699.3 million in Fiscal 2023, primarily driven by the increase in project backlog resulting from a recovery of our core oil, gas and petrochemical markets.
Removed
We continue to operate below capacity in some areas and will consistently monitor the macro-economic conditions as we head into our fiscal year ending September 30, 2023.
Added
These increases in revenue were driven by improved market conditions and our strategic effort to diversify our business. Revenue from our traction market decreased by 37%, or $16.8 million, to $28.1 million in Fiscal 2023. Gross profit increased by 74%, or $62.5 million, to $147.6 million in Fiscal 2023.
Removed
As discussed further under the heading "Outlook" below, it is difficult to predict the economic impact that this global economic uncertainty, as well as commodity price volatility, may have on our business, results of operations and cash flows going forward.
Added
Gross profit as a percentage of revenues increased to 21% in Fiscal 2023 as compared to 16% in the prior year. This increase in gross profit was favorably impacted by the higher volume levels across the manufacturing facilities driving key factory efficiencies, strong project execution as well as, effectively managing product pricing that corresponds to current cost levels.
Removed
Results of Operations Twelve Months Ended September 30, 2022 Compared to Twelve Months Ended September 30, 2021 Revenue and Gross Profit Revenues increased by 13%, or $62.0 million, to $532.6 million in Fiscal 2022. Domestic revenues increased by 15%, or $53.5 million, to $405.0 million in Fiscal 2022. International revenues increased by 7%, or $8.5 million, to $127.6 million.
Added
Selling, general and administrative expenses, as a percentage of revenues, decreased to 11% in Fiscal 2023, compared to 13% in Fiscal 2022, based upon leveraging our cost structure on the increase in revenues.
Removed
Revenue from our utility end markets increased by 10%, or $11.1 million, to $122.4 million and traction market revenue decreased by 24%, or $14.2 million, to $44.9 million in Fiscal 2022.
Added
The favorable impacts of the estimated Research and Development Tax Credit (R&D Tax Credit) and the release of the valuation allowance previously recorded against the U.K. net deferred tax assets in the amount of $1.9 million were offset by state income tax expense, certain non-deductible items and the tax impact of U.S. global intangible income.
Removed
Gross profit increased by 13%, or $10.0 million, to $85.0 million in Fiscal 2022.
Added
This increase in backlog is driven primarily from our oil and gas markets, including LNG, petrochemical, utility and commercial and other industrial markets.
Removed
Despite the increase in revenues, gross profit as a percentage of revenues remained flat to the prior fiscal year at 16% in Fiscal 2022 due to increased costs impacting older projects in our backlog that were subject to inflationary pressures on raw materials and components, with little or no recourse from the customer to reprice the project.
Added
Bookings, net of cancellations and scope reductions, increased by 94% in Fiscal 2023 to $1.4 billion, compared to $718.6 million in Fiscal 2022, primarily driven by continued strength from our core oil, gas and petrochemical markets, including several large LNG and petrochemical projects.
Removed
On more recent projects in the backlog, we were able to successfully pass the inflationary impact to the customer in the form of increased pricing.
Added
Outlook Recently we have seen a cyclical recovery across our core oil, gas and petrochemical markets combined with increased global demand for cleaner-burning fuels as well as related processes utilizing lower cost gas feedstocks. Our order activity in most of our core markets has been strong and includes multiple large LNG and petrochemical projects.
Removed
Additionally, favorable project execution, volume leverage and product mix, including fast track service and replacement projects across our service division, all helped to offset the negative inflationary pressure carried by the older projects in the backlog. Additionally, gross profit from our international operations improved over the prior year driven by favorable project execution and increased volume.
Added
This elevated project activity has increased our backlog to approximately $1.3 billion. Diversification efforts outside of our core oil, gas and petrochemical end markets have also been a positive catalyst, helping to drive the increase in backlog.
Removed
Throughout the second half of Fiscal 2022, gross margins benefited from favorable close out gains and associated productivity on select projects. Additionally, revenue and gross profit increased by $2.5 million resulting from the settlement of a claim for cost overruns from prior years related to a U.S. based municipal transit project.
Added
This strong backlog of projects, which incorporates pricing and productivity initiatives in response to persistent inflationary pressures, should continue to support an increasing level of revenue into Fiscal 2024. Approximately $648 million of the backlog is expected to be recognized as revenue within the next twelve months.
Removed
In Fiscal 2021, the effective tax rate was negatively impacted by our inability to recognize a tax benefit related to losses incurred in various jurisdictions outside of the United States as well as the establishment of a valuation allowance against the deferred tax assets in Mexico.
Added
We do not anticipate our backlog will continue to grow at the same pace as we have recognized in the last twelve months, which included several large LNG and petrochemical projects booked throughout Fiscal 2023.
Removed
The estimated R&D Tax Credit as well as the utilization of net operating loss carryforwards in Canada that were fully reserved with a valuation allowance provided a tax benefit for Fiscal 2021.
Added
The increase in cash, cash equivalents and short-term investments was primarily driven by the increased project volume and favorable timing of contract billing milestones on some of our large projects. We typically allocate a significant percentage of the progress billing to the early stages of the contract.
Removed
This increase in net income is primarily due to the increase in bookings which led to an increase in revenues, the release of a Canadian valuation allowance recorded against net deferred tax assets, the gain on the sale of a non-core business within our Canadian operations and the settlement of a claim from a project completed in prior years.
Added
These favorable billing milestones along with our increase in project backlog are the primary drivers for the increase at September 30, 2023.
Removed
The large year-over-year increase was due to strength across our utility, petrochemical, and commercial and other industrial end markets. Outlook As noted in "Overview" above, the markets in which we participate are capital-intensive and generally cyclical in nature. A significant portion of our revenues has historically been from the oil, gas and petrochemical markets.
Added
For further information regarding our debt, see Notes G and H of Notes to Consolidated Financial Statements. On October 4, 2023, we entered into a third amendment to the U.S. Revolver (the Third Amendment) with Bank of America, N.A., and Texas Capital Bank has agreed to join as an additional lender under the U.S. Revolver.
Removed
Oil and gas commodity price levels have been volatile over the last several years, and our customers have in certain cases, delayed or cancelled some of their major capital investment projects due to price volatility and changes in return expectations.
Added
The Third Amendment increased the amount of the revolving line of credit from $125.0 million to $150.0 million and extended the expiry date to October 4, 2028. For further information regarding the Third Amendment, see Note G to Consolidated Financial Statements.
Removed
Recently we have seen increased global demand for cleaner-burning fuels; however, the uncertainty in oil prices and the global economic impacts from COVID-19, including supply chain disruptions and associated inflationary pressures, as well as other geopolitical events may have a negative impact on our business going forward, as discussed in more detail below.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−1 removed4 unchanged
Biggest changeIn the future, we may enter into additional derivative contracts to further hedge our exposure to commodity price risk. We continue to experience price volatility with some of our key raw materials and components. Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings.
Biggest changeThis contract was immaterial for both Fiscal 2022 and Fiscal 2023, and ended in June 2023. In the future, we may enter into additional derivative contracts to further hedge our exposure to commodity price risk. We continue to experience price volatility with some of our key raw materials and components.
Our customers are typically in the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and other industrial markets.
Our customers are typically in the oil and gas and petrochemical markets, which include onshore and offshore production, LNG facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and industrial markets.
Market Risk We are exposed to general market risk and its potential impact on accounts receivable or costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions.
Market Risk We are exposed to general market risk and its potential impact on accounts receivable, costs and estimated earnings in excess of billings on uncompleted contracts. The amounts recorded may be at risk if our customers’ ability to pay these obligations is negatively impacted by economic conditions.
Fluctuations in commodity prices may have a material impact on our future earnings and cash flows. Foreign Currency Transaction Risk We have foreign operations that expose us to foreign currency exchange rate risk in the British Pound Sterling, the Canadian Dollar and to a lesser extent the Singapore Dollar and the Euro, among others.
Fluctuations in commodity prices may have a material impact on our future earnings and cash flows. 25 Foreign Currency Transaction Risk We have foreign operations that expose us to foreign currency exchange rate risk in the British Pound Sterling, the Canadian Dollar and to a lesser extent the Singapore Dollar and the Euro, among others.
Occasionally, our customers may include an engineering, procurement and construction (EPC) firm which may increase our market risk exposure based on the business climate of the EPC firm. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.
Occasionally, our customers may include an EPC firm which may increase our market risk exposure based on the business climate of the EPC firm. We maintain ongoing discussions with customers regarding contract status with respect to payment status, change orders and billing terms in an effort to monitor collections of amounts billed.
This increase in comprehensive loss was primarily a result of fluctuations in the currency exchange rates for the Canadian Dollar and British Pound Sterling as we remeasured the foreign operations of those divisions. We do not typically hedge our exposure to potential foreign currency translation adjustments. 26 Interest Rate Risk If we borrow under our U.S.
This decrease in comprehensive loss was primarily a result of fluctuations in the currency exchange rates for the Canadian Dollar and British Pound Sterling as we re-measured the foreign operations of those divisions. We do not typically hedge our exposure to potential foreign currency translation adjustments. Interest Rate Risk If we borrow under our U.S.
Revolver, we will be subject to market risk resulting from changes in interest rates related to our floating rate bank credit facility. If we were to make such borrowings, a hypothetical 100 basis point increase in variable interest rates may result in a material impact to our financial statements.
Revolver, we will be subject to market risk resulting from changes in interest rates related to our floating rate bank credit facility. If we were to make such borrowings, a hypothetical 100 basis point increase in variable interest rates may result in a material impact on our financial statements. Because we did not have any outstanding borrowings under our U.S.
We attempt to pass along such commodity price increases to our customers on a contract-by-contract basis to avoid a negative effect on our profit margin. We have entered into a derivative contract to hedge a portion of our exposure to commodity price risk. This contract is immaterial for Fiscal 2022.
We attempt to pass along such commodity price increases to our customers on a contract-by-contract basis to avoid a negative effect on our gross margin. During Fiscal 2022, we entered into a derivative contract to hedge a portion of our exposure to commodity price risk.
For Fiscal 2022, our realized foreign exchange gain was $0.3 million and is included in selling, general and administrative expenses in the Consolidated Statements of Operations. Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was $29.0 million as of September 30, 2022, an increase of $8.6 million compared to September 30, 2021.
For Fiscal 2023, our realized foreign exchange loss was $0.4 million and is included in selling, general and administrative expenses in our Consolidated Statements of Operations. Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was $26.9 million as of September 30, 2023, a decrease of $2.1 million compared to September 30, 2022.
Removed
While we do not currently have any derivative contracts to hedge our exposure to interest rate risk, in the past we have entered and may in the future enter into such contracts. During each of the periods presented, we have not experienced a significant effect on our business due to changes in interest rates. 27
Added
Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings.
Added
Revolver as of both September 30, 2023 and 2022, we have not experienced any significant interest rate risk for each of the periods presented in our Consolidated Statements of Operations. 26

Other POWL 10-K year-over-year comparisons