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What changed in POWELL INDUSTRIES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of POWELL INDUSTRIES INC's 2023 and 2024 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 2024 report.

+261 added−219 removedSource: 10-K (2024-11-20) vs 10-K (2023-12-06)

Top changes in POWELL INDUSTRIES INC's 2024 10-K

261 paragraphs added · 219 removed · 160 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeDue 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.
Biggest changeAdditionally, 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.
Contracts often represent large-scale and complex projects with an individual customer. By their nature, these projects are typically non-recurring. Thus, multiple and/or continuous projects of similar magnitude with the same customer are not predictable. The timing of large project awards may cause material fluctuations in our revenues and gross profits.
Contracts often represent large-scale and complex projects with an individual customer. By their nature, these projects are typically non-recurring. Thus, multiple or continuous projects of similar magnitude with the same customer are not predictable. The timing of large project awards may cause material fluctuations in our revenues and gross profits.
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.
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 distribute, control and monitor the flow of electrical energy and provide protection to motors, transformers and other electrically powered equipment.
Furthermore, quarterly operating results may fluctuate in our first fiscal quarter due to the reduction in the number of workdays related to the number of holidays and paid time off that is taken in that fiscal quarter. 6 Government Regulations We are subject to various government regulations in the U.S. as well as various international locations where we operate.
Furthermore, quarterly operating results may fluctuate in our first fiscal quarter due to the reduction in the number of workdays related to the number of holidays and paid time off that is taken in that fiscal quarter. Government Regulations We are subject to various government regulations in the U.S. as well as various international locations where we operate.
Occasionally our contracts may operate under a consortium or teaming arrangement. Typically, we enter into these arrangements with reputable companies with whom we have previously conducted business. These arrangements are generally made to leverage competitive positioning, or where scale and/or size dictates the use of such arrangement.
Occasionally, our contracts may operate under a consortium or teaming arrangement. Typically, we enter into these arrangements with reputable companies with whom we have previously conducted business. These arrangements are generally made to leverage competitive positioning, or where scale or size dictates the use of such arrangement.
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.
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. Raw Materials The principal raw materials used in our operations include steel, copper and aluminum, as well as various engineered electrical components.
We make available, free of charge on or through our website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (SEC).
We make available, free of charge on or through our website, electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as is reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
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.
We believe that the eight-year average tenure of our employees is a reflection of our inclusive and supportive culture, 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 2023, Fiscal 2022 and Fiscal 2021 used throughout this Annual Report relate to our fiscal years ended September 30, 2023, 2022 and 2021, respectively.
Additionally, all of our reports filed with the SEC are available via their website at sec.gov . References to Fiscal 2024, Fiscal 2023 and Fiscal 2022 used throughout this Annual Report relate to our fiscal years ended September 30, 2024, 2023 and 2022, respectively.
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.
Supply problems could result in delays in our ability to meet commitments to our customers and potentially result in liquidated damages assessed by our customers.
Our top human capital priorities include the well-being, health and safety, and retention of our employees, as well as enhanced learning and leadership training opportunities, workplace safety, internal promotion and key employee retention. Powell emphasizes a culture of safety that runs throughout the Company.
Our top human capital priorities include the well-being, health and safety, and retention of our employees, as well as enhanced learning and leadership training opportunities, workplace safety, internal promotion and key employee retention. We emphasize a culture of safety that runs throughout the Company.
Our principal competitors include ABB, Eaton, Schneider, and Siemens. The competitive factors used during bid evaluation by our customers vary from project to project and may include technical support and application expertise, engineering and manufacturing capabilities, equipment rating, delivered value, scheduling and price.
The competitive factors used during bid evaluation by our customers vary from project to project and may include technical support and application expertise, engineering and manufacturing capabilities, equipment rating, delivered value, scheduling and price.
These regulations cover diverse 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. Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies.
These regulations cover diverse 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. Our policies mandate compliance with applicable laws and regulations administered by various state, federal and international agencies, and are designed to promote and encourage ethical practices in our everyday operations.
Products and services are principally sold directly to the end user or to an engineering, procurement and construction (EPC) firm on behalf of the end user. Each project is specifically engineered and manufactured to meet the exact specifications and requirements of the individual customer.
Our principal services include field service inspection, installation, commissioning, modification and repair services. Products and services are principally sold directly to the end user or to an engineering, procurement and construction (EPC) firm on behalf of the end user. Each project is specifically engineered and manufactured to meet the exact specifications and requirements of the individual customer.
We have established a multi-faceted compliance program that includes educating employees and leadership, performing risk-based due diligence and evaluating our supplier base. We require legal and ethical practices in our everyday work. We do not believe that compliance with governmental regulations will have a material impact on our capital expenditures, results of operations or competitive position.
We have established a multi-faceted compliance program that includes educating employees and leadership, performing risk-based due diligence and evaluating our supplier base. We believe that the compliance cost associated with these governmental regulations will not have a material impact on our capital expenditures, results of operations or competitive position. 7
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.
Markets While we provide products and services to a wide range of markets where customers need to manage, monitor and control large amounts of electrical energy, demand for our products and services is driven predominantly by the oil and gas, petrochemical, electric utility, and commercial and other industrial markets.
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.
Uncertainty and fluctuating global demand have led to significant volatility across commodity markets. 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 are working closely with our suppliers to meet our customer commitments.
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.
We establish annual goals and monthly operating metrics and, as a result, had a safety incident rate of 0.74 for Fiscal Year 2024, which is below the industry average, according to the U.S. Bureau of Labor Statistics.
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.
Human Capital At September 30, 2024, we had 2,748 full-time employees and 439 contract employees located primarily in the United States, Canada and the United Kingdom (U.K.). Our employees are not represented by unions, and we maintain good relationships with our employees.
We are headquartered in Houston, Texas, and our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada, Inc.; and Powell Industries International, B.V. Our website is powellind.com .
Our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.; Powell Canada, Inc.; Powell (UK) Limited; and Powell Industries International, B.V. We are headquartered in Houston, Texas, and primarily serve the oil and gas and petrochemical markets, the electric utility market, and commercial and other industrial markets.
We anticipate that approximately $648 million of Fiscal 2023 ending backlog will be fulfilled during our fiscal year ending September 30, 2024.
Our backlog at September 30, 2024 was $1.3 billion. We anticipate that approximately $849 million of Fiscal 2024 ending backlog will be recognized as revenue during our fiscal year ending September 30, 2025.
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 could be adversely impacted. In both Fiscal 2024 and Fiscal 2023, no single customer accounted for more than 10% of our consolidated revenues.
We compete with a small number of multinational competitors that sell to a broad industrial and geographic market, as well as smaller, regional competitors that typically have limited capabilities and scope of supply. Some of our competitors are significantly larger and have substantially greater global resources such as engineering, manufacturing and marketing.
We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels. Competition We compete with a small number of multinational competitors that sell to a broad industrial and geographic market, as well as smaller, regional competitors that typically have limited capabilities and scope of supply.
Our product scope includes designs tested to meet both United States (U.S.) and international standards, under both the American National Standards Institute (ANSI) and International Electrotechnical Commission (IEC).
Our product scope includes designs tested to meet both United States (U.S.) and international standards, under both the American National Standards Institute (ANSI) and International Electrotechnical Commission (IEC). We also provide spare parts, retrofit and retrofill components for existing systems, and replacement circuit breakers for obsolete switchgear no longer produced by the original manufacturer.
Material 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.
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. 6 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.
We measure our success based on the percentage of internal promotions to key positions and our ability to attract and retain key employees. Intellectual Property While we hold various patents, trademarks, servicemarks, copyrights and licenses, we do not consider any individual intellectual property to be material to our consolidated business operations. Seasonality Our operations are not generally affected by seasonality.
We measure our success based on the percentage of internal promotions to key positions and our ability to attract and retain key employees. Seasonality Our operations are not generally affected by seasonality. However, weather and natural phenomena can temporarily impact the performance of our operations.
We seek to establish long-term relationships with the end users of our systems as well as design and construction engineering firms contracted by those end users. We believe that our exemplary culture of safety and focus on customer satisfaction, along with our financial strength, allow us to continue to capitalize on opportunities in the industries we serve.
We seek to establish long-term relationships with the end users of our systems as well as EPC firms contracted by those end users.
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.
For example, Powell's expertise in vacuum circuit breaker engineering is internationally recognized, and leveraging this expertise in the development of new products will help us expand into a broader range of application spaces and industry sectors. We are committed to continuous product improvement that will positively impact operational safety and reliability across the markets we serve.
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.
Within the petrochemical market, our primary customers typically are engaged in leveraging hydrocarbon or natural gas feedstocks for the production of petrochemical, or oil- or gas-to-chemical products, including polyethylene, polypropylene, fertilizer, methanol, and related petrochemical applications. In the electric utility market, we serve both the power generation and distribution end markets.
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.
We consider our engineering, project management, systems integration and technical support capabilities vital to the success of our business. We strive to develop strong and lasting relationships with our customers and are recognized by many as a preferred service provider to solve our customers’ complex electrical distribution needs.
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.
Research, Development and Intellectual Property Research and development activities are critical to Powell’s sustained growth and are focused on both the development of new products and applications and enhancement of our existing product offerings.
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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.
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Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities. We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels. Our website is powellind.com .
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We assist customers by providing field service inspection, installation, commissioning, modification, and repair services, as well as spare parts, retrofit and retrofill components for existing systems, and replacement circuit breakers for obsolete switchgear no longer produced by the original manufacturer.
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We believe that fostering a culture of safety and focusing on customer satisfaction, along with our strong balance sheet, allows us to capitalize on opportunities in the industries we serve. 4 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.
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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.
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From time to time, we apply for patents on new inventions and designs, but we believe that the growth of our business will depend primarily upon the quality of our products and our relationships with our customers, rather than the extent of our patent protection.
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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.
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Additionally, we may acquire from time to time intellectual property to expand our product offering and application. For example, in December 2023, we acquired intellectual property for a total consideration of $0.5 million.
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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.
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Intellectual property not covered by patents (or patent applications) includes trade secrets and other technological know-how that is not patentable or for which we have elected not to seek patent protection, including intellectual property relating to our manufacturing processes and engineering designs.
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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.
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Such unpatented technology, including research, development and engineering technical skills and know-how, as well as unpatented software, is important to our overall business and to the operations of our business.
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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.
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While our intellectual property assets taken together are important, we do not believe our business would be materially affected by the expiration of any particular intellectual property right or termination of any particular intellectual property patent license agreement.
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However, weather and natural phenomena can temporarily impact the performance of our operations.
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The following table presents our revenue for each market sector by percentage of total revenue for the years ended September 30, 2024, 2023 and 2022: 2024 2023 2022 Oil and gas (excluding petrochemical) 41% 39% 40% Petrochemical 18% 13% 13% Electric utility 19% 23% 23% Commercial and other industrial 15% 15% 11% Light rail traction power 2% 4% 8% All others 5% 6% 5% Total 100% 100% 100% 5 In the oil and gas markets, we serve the upstream, midstream and downstream end markets, including onshore and offshore production, liquefied natural gas (LNG) facilities and terminals, pipelines and refineries.
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In addition to the traditional crude oil refining and other oil and gas downstream processes, we have recently expanded our end markets into hydrogen production, carbon capture, as well as alternative fuels, such as biofuels and sustainable aviation fuel, in response to the demand for clean energy.
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Increasing global electricity demand and the focus on reliable and safe electrical distribution are driving substantial investments in global infrastructure. Aligned with our strategy of end-market diversification, we seek to continue our focus and growth in electrical distribution substations, while also addressing a resurgence of power generation investment in the market.
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In the commercial and other industrial markets, our customers operate in commercial construction, data centers, metals and mining, pulp and paper, as well as other industrial applications. Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities.
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Some of our competitors are significantly larger and have substantially greater global resources such as engineering, manufacturing and marketing. Our principal competitors include ABB, Eaton, Schneider, and Siemens Industries, Inc.
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Material costs represented 47% of revenues in Fiscal 2024, 49% of revenues in Fiscal 2023, and 51% of revenues in Fiscal 2022.
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In response to the increased cost environment and supply chain challenges, we strive to effectively manage our product pricing, delivery schedules and bid validity dates with our customers, as well as improve factory efficiencies and project execution.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThis 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.
Biggest changeWhile 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, 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.
These variables may impact the number and/or the amount of new awards, delays in the timing of awards or potential cancellation of projects. Changes in product mix or services can have a significant impact on our gross margins on a quarterly and annual basis.
These variables may impact the number or the amount of new awards, delays in the timing of awards or potential cancellation of projects. Changes in product mix or services can have a significant impact on our gross margins on a quarterly and annual basis.
Failure to successfully develop new products, or to enhance existing products, could result in the loss of existing customers to competitors, the inability to attract new business or an overall reduction in our competitive position, any of which could adversely affect our business and results of operations.
Failure to successfully develop new products, or to enhance existing products, could result in the loss of existing customers to competitors, the inability to attract new business or an overall reduction of our competitive position, any of which could adversely affect 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.
Acts of misconduct, or our failure to comply with applicable laws or regulations, could subject us to fines and penalties, harm our reputation, or damage our relationships with customers and could adversely impact our business and results of operations.
Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately and/or on a timely basis.
Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately or on a timely basis.
This Annual Report also includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the discussion under “Forward-Looking Statements,” above.
This Annual Report also includes statements reflecting assumptions, expectations, projections, intentions or beliefs about future events that are intended as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and should be read in conjunction with the discussion under “Forward-Looking Statements” above.
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.
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 liquidated damages until we are able to secure alternative sources.
The ultimate realization of the future revenue in our backlog is based upon our ability to complete the projects, and we cannot control all of the various factors that might impact the timely delivery of our projects to our customers.
The ultimate realization of the future revenue in our backlog is based upon our ability to complete the contracted projects, and we cannot control all of the various factors that might impact the timely delivery of our projects to our customers.
We cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of key personnel, or the inability to hire, train and retain qualified employees, could negatively impact our ability to perform and manage our business. 15 Item 1B. Unresolved Staff Comments None.
We cannot be certain that any individual will continue in such capacity for any particular period of time. The loss of key personnel, or the inability to hire, train and retain qualified employees, could negatively impact our ability to perform and manage our business. 19 Item 1B. Unresolved Staff Comments None.
Acquisitions involve certain risks, including difficulties in the integration of operations and systems; failure to realize cost savings; the termination of relationships by key personnel and customers of the acquired company and a failure to retain or add additional employees to handle the increased volume of business.
Acquisitions involve certain risks, including distraction of management, difficulties in the integration of operations and systems; failure to realize cost savings; the termination of relationships by key personnel and customers of the acquired company and a failure to retain or add additional employees to handle the increased volume of business.
While our manufacturing facilities are located in developed countries with historically stable operating and fiscal environments, our business and results of operations could be adversely affected by a number of factors, including political and economic instability; social unrest, acts of terrorism, force majeure, war or other armed conflict; inflation; changes in tax laws; the application of foreign labor regulations; currency fluctuations, devaluations and conversion restrictions and/or governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds and trade restrictions or economic embargoes imposed by the U.S. or other countries.
While our manufacturing facilities are located in developed countries with historically stable operating and fiscal environments, our business and results of operations could be adversely affected by a number of factors, including political and economic instability; social unrest, acts of terrorism, force majeure, war or other armed conflict; inflation; changes in tax laws; the application of foreign labor regulations; currency fluctuations, devaluations and conversion restrictions or governmental activities that limit or disrupt markets, restrict payments or limit the movement of funds and trade restrictions or economic embargoes imposed by the United States or other countries.
Risk Factors Related to our Business and Industry Our business is subject to the cyclical nature of the end markets that we serve. This has had, and may continue to have, an adverse effect on our future operating results.
Risk Factors Related to our Business and Industry Our business is subject to the cyclical nature of the end markets that we serve. This cyclicality has had, and may continue to have, an adverse effect on our operating results.
Changes in policy, laws or regulations, including those affecting oil and gas exploration and development activities or climate change matters and the resulting decisions by customers and other industry participants, could reduce demand for our products and services, which would have a negative impact on our operations.
Changes in laws or regulations, or policy goals, including those affecting oil and gas exploration and development activities or climate change matters and the resulting decisions by customers of ours and other industry participants, could reduce demand for our products and services or for those of our customers, which would have a negative impact on our operations.
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.
We may be unable to recover certain costs on our anticipated margin, and cancelled or suspended projects may also result in additional unrecoverable costs due to the underutilization of our assets and personnel.
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.
The occurrence of catastrophic events, ranging from natural d isasters and extreme weather conditions to health epidemics, to acts of war and terrorism, among others, could increase operating costs 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 liquidated damages under our contracts.
Changes in U.S. or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell our products, and any negative sentiment towards the U.S. as a result of such changes, could adversely impact our business and results of operations.
Changes in United States or international social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where we currently develop and sell our products, and any negative sentiment towards the United States as a result of such changes, could adversely impact our business and results of operations.
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.
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.
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.
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 United States and those countries. Any of these factors 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 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.
Unanticipated shortages in raw material and components, rising prices due to overall inflationary pressure, the imposition of tariffs, or delays in production or transportation 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.
We are subject to income taxes in the U.S. and numerous foreign jurisdictions. A change in tax laws, deductions or credits, treaties or regulations, or their interpretation, in the countries in which we operate, could result in a higher tax rate on our pre-tax income, which could have a material impact on our net income.
We are subject to income taxes in the United States and numerous foreign jurisdictions. A change in tax laws, deductions or credits, treaties or regulations, or their interpretation, in the countries in which we operate, could result in a higher tax rate on our pre-tax income, which could have a material impact on our net income.
While we take every precaution to avoid incidents, we have experienced accidents in the past and may again in the future, which can negatively affect our safety record.
While we take precautions to avoid incidents, we have experienced accidents in the past and may again in the future, which can negatively affect our safety record.
We are continually working to maintain and strengthen our internal controls over operational and financial reporting, however, any system of controls has limitations, including the possibility of human error, availability of qualified personnel, circumvention or overriding of controls and/or fraud.
We seek to maintain and strengthen our internal controls over operational and financial reporting. However, any system of controls has limitations, including the possibility of human error, availability of qualified personnel, circumvention or overriding of controls or fraud.
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, the majority of our revenues are recognized over time. Revenues are recognized as work is performed and costs are incurred.
As discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates” and in the Notes to Consolidated Financial Statements included elsewhere in this Annual Report, the majority of our revenues are recognized over time.
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.
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 United States, including revenues generated from our operations in the U.K. and Canada, accounted for approximately 16% of our consolidated revenues in Fiscal 2024.
Our future success will depend, in part, on our ability to anticipate and offer products that meet changing industry and customer specifications as well as fund our research and development costs. Consumer demand for further automation is changing the markets we operate in.
Our future success will depend, in part, on our ability to anticipate and offer products that meet changing industry and customer specifications, including by funding our research and development costs. For example, consumer demand for further automation is changing the markets in which we operate.
The time and effort associated with the selection and qualification of a new supplier and changes in our design and testing to accommodate similar components from other suppliers could be significant. Additionally, we rely on certain competitors for key materials used in our products.
The time and effort associated with the selection and qualification of a new supplier and changes in our design and testing to accommodate similar components from other suppliers could be significant.
In addition, such events could result in temporary or long-term delays of existing projects as well as cancellations of orders for raw materials from our suppliers that could impact our project execution.
In addition, such events could result in temporary or long-term delays of existing projects as well as cancellations of orders for raw materials from our suppliers that could impact our project execution. These situations or other disruptions are outside of our control and may adversely impact our business and results of operations.
We may experience shortages of qualified personnel such as engineers, project managers, supervisors, office personnel and select skilled trades. We cannot be certain that we will be able to maintain an adequate skilled or unskilled labor force or key technical personnel necessary to operate efficiently and to support our growth strategy and operations.
We cannot be certain that we will be able to maintain an adequate skilled or unskilled labor force or key technical personnel necessary to operate efficiently and to support our growth strategy and operations.
Increased regulations and reporting requirements around the world may adversely affect the operators in the markets we serve. Further, we cannot predict future changes in any country in which we operate or do business and how those changes may affect our ability to perform projects in those regions.
We cannot predict future changes in any country in which we operate or do business and how those changes may affect our ability to perform projects in those regions.
Additional restrictions or economic disincentives on U.S. or international trade such as significant increases in tariffs on goods could adversely impact our business.
Significant developments arising from tariffs and other economic proposals could adversely impact our business. Additional restrictions or economic disincentives on United States or international trade such as significant increases in tariffs on goods could adversely impact our business.
Misconduct by our employees or subcontractors, or a failure to comply with laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions.
Any failure to successfully complete or successfully integrate acquisitions could have a material adverse effect on our business and results of operations. Misconduct by our employees or subcontractors, or a failure to comply with applicable laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions.
Accordingly, our financial performance is subject to fluctuations due to changes in foreign currency exchange rates relative to the U.S. dollar, and such fluctuations could adversely impact our financial position and results of operations.
Accordingly, our financial performance is subject to fluctuations due to changes in foreign currency exchange rates relative to the U.S. dollar, and such fluctuations could adversely impact our financial position and results of operations. 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.
Our ability to remain in compliance with such financial covenants and restrictions may be affected by factors beyond our control, including general or industry-specific economic downturns. If we fail to remain in compliance with such covenants and restrictions, absent an amendment or waiver, this could result in an event of default under the credit agreement.
If we fail to remain in compliance with such covenants and restrictions, absent an amendment or waiver, this could result in an event of default under the credit agreement.
Furthermore, our ability to maintain or expand our business would be limited in the future if we are unable to maintain or increase our bonding capacity or our bank credit facility on favorable terms or at all.
Additionally, the loss of significant volume from one particular customer at one of our facilities could adversely impact the operating results of that facility. Our ability to maintain or expand our business would be limited in the future if we are unable to maintain or increase our bonding capacity or our bank credit facility on favorable terms or at all.
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.
We are subject to various government regulations in the United States as well as various international locations where we operate. 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.
We are also dependent on the overall bonding capacity, pricing and terms available in the surety markets. As such, we cannot guarantee our ability to maintain a sufficient level of bonding capacity in the future.
Future compliance with such financial covenants may be affected by factors beyond our control, including general or industry-specific economic downturns. We are also dependent on the overall bonding capacity, pricing and terms available in the surety markets. As such, we cannot guarantee our ability to maintain a sufficient level of bonding capacity in the future.
We provide warranties to our customers for our products and services and the cost to satisfy customer warranty claims, which may include, among other things, costs for the repair or replacement of products, could adversely impact our business and results of operations. Growth and product diversification through strategic acquisitions involve a number of risks.
We provide warranties to our customers for our products and services, and the cost to satisfy customer warranty claims, which may include, among other things, costs for the repair or replacement of products could adversely impact our business and results of operations. Many of our contracts contain performance obligations that may subject us to penalties or additional liabilities.
We are often required to provide our customers security for the performance of their projects in the form of surety bonds, letters of credit or other financial assurances. Our continued ability to obtain surety bonds, letters of credit or other financial assurances will depend on our capitalization, working capital and financial performance.
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. We are often required to provide our customers security for the performance of their projects in the form of surety bonds, letters of credit or other financial assurances.
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.
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. 17 Our insurance coverage may not be sufficient to compensate for all liability relating to any actual or potential disruption or other security breach or incident.
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.
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. 16 General Risk Factors We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks.
Private lawsuits or enforcement actions by federal, state, provincial or foreign regulatory agencies may materially increase our costs. Certain environmental laws may make us potentially liable for the remediation of contamination at or emanating from our properties or facilities.
Certain environmental laws may make us potentially liable for the remediation of contamination at or emanating from our properties or facilities.
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, one of our manufacturing facilities may have significant volume from one particular customer or industry that would be material to that facility.
Additionally, 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.
We have both indoor and outdoor manufacturing and fabrication facilities that are susceptible to numerous industrial safety risks that can lead to personal injury, loss of life, damage to property and equipment, as well as potential environmental damage.
Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover. We have both indoor and outdoor manufacturing and fabrication facilities that are susceptible to numerous industrial safety risks that can lead to personal injury, loss of life, damage to property or equipment, and potential environmental damage.
In addition, provisions of our Certificate of Incorporation and bylaws may discourage, delay or prevent a merger, acquisition or other change in control that stockholders might otherwise consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares.
Such provisions may discourage, delay or prevent a merger, acquisition or other change in control that shareholders might otherwise consider favorable, including transactions in which shareholders might otherwise receive a premium for their shares, and may frustrate or prevent any attempt by our shareholders to replace or remove our current management by making it more difficult to replace or remove our Board of Directors.
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.
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.
Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement could adversely impact our business. Our credit agreement contains various financial covenants and restrictions, which are described in Note G of the Notes to Consolidated Financial Statements.
Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement could adversely impact our business. Our credit agreement contains various financial covenants and restrictions, which includes maintaining 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.
Our ability to maintain our productivity at competitive levels may be limited by our ability to employ, compensate, train and retain personnel necessary to meet our requirements. We face competition within and outside of our markets for qualified personnel across all of our workforce.
Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees. Our ability to maintain our productivity at competitive levels may be limited by our ability to employ, compensate, train and retain personnel necessary to meet our requirements.
It is possible that adjustments arising from such claims, or our failure to manage our contract risk, may not be covered by insurance and could have an adverse impact on our results of operations. 10 Fluctuations in the price and supply of materials used to manufacture our products may reduce our profits and could adversely impact our ability to meet commitments to our customers.
It is possible that adjustments arising from such claims, or our failure to manage our contract risk, may not be covered by insurance and could have an adverse impact on our results of operations. 10 Growth and product diversification through strategic acquisitions involve a number of risks.
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.
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.
The timing of the costs incurred may lead to fluctuations in revenue recognized on a quarterly and annual basis. The cost estimation process is based upon the professional knowledge and experience of our management teams, engineers, project managers and financial professionals.
While the cost estimation process is based upon the professional knowledge and experience of our management teams, engineers, project managers and financial professionals, we may fail to adequately estimate our costs or revenue (or, we may fail to adequately adjust previously recorded estimates of revenue and costs).
Our material costs represented 49% of our consolidated revenues for Fiscal 2023.
Our material costs equaled approximately 47% of our consolidated revenues for Fiscal 2024.
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.
Any of these factors could adversely impact our business and results of operations. 12 A significant portion of our revenues may be concentrated among a small number of customers and may be subject to the risks of particular industries.
Our ability to issue letters of credit is dependent upon the availability of adequate credit issued by our banks and could be negatively impacted by our compliance with our financial covenants. Future compliance with such financial covenants may be affected by factors beyond our control, including general or industry-specific economic downturns.
Our continued ability to obtain surety bonds, letters of credit or other financial assurances will depend on our capitalization, working capital and financial performance. Our ability to issue letters of credit is dependent upon the availability of adequate credit issued by our banks and could be negatively impacted by our compliance with our financial covenants.
Moreover, the violation of such laws or regulations, by us or our representatives, could result in severe penalties including monetary fines, criminal proceedings and suspension of export privileges. Additionally, fluctuating foreign currency exchange rates may impact our financial results. The functional currency of our foreign operations is typically the currency of the country in which the foreign operation is located.
Additionally, fluctuating foreign currency exchange rates may impact our financial results. The functional currency of our foreign operations is typically the currency of the country in which the foreign operation is located.
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.
Additionally, increased attention to climate change, conservation measures, energy transition, negative attitudes toward oil and natural gas production and consumer demand for alternatives to hydrocarbons could reduce the demand for oil and gas applications.
A significant increase in our statutory tax rates or loss of our ability to claim Research and Development Tax Credits could have a material impact on our net income or loss and cash flow. The departure of key personnel could disrupt our business. We depend on the continued efforts of our executive officers, senior management and other key personnel.
A significant increase in our statutory tax rates or loss of our ability to claim Research and Development Tax Credits could have a material impact on our net income or loss and cash flow. Failure to develop, obtain, enforce, and protect intellectual property rights or third-party claims that we are infringing on their intellectual property could harm our business.
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.
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.
The industries in which we operate are characterized by intense competition and are highly sensitive to technological innovation and customer requirements.
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. The industries in which we operate are characterized by intense competition and are highly sensitive to technological innovation and customer requirements.
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.
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. Risk Factors Related to our Financial Condition and Markets Global economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.
Additionally, compliance with foreign and domestic import and export regulations and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, General Data Protection Regulation, or similar laws of other jurisdictions outside the U.S., could adversely impact our ability to compete for contracts in such jurisdictions.
Additionally, compliance with foreign and domestic import and export regulations, including laws and regulations of the U.S. Treasury Department’s Office of Foreign Assets Control, and anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act or the U.K.
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.
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. Private lawsuits or enforcement actions by federal, state, provincial or foreign regulatory agencies may materially increase our costs.
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.
Such failure could result in additional changes to our revenue and cost estimates which could have an adverse impact on our results of operations. 9 We are exposed to risks relating to the use of subcontractors.
The revenue earned to date is calculated by multiplying the total contract price by the percentage of performance to date, which is based on total costs incurred to date compared to the total estimated costs at completion. The determination of the revenue recognized requires the use of estimates of costs to be incurred for the performance of the contract.
Since revenue is recognized as work is performed and as costs are incurred, the determination of the revenue recognized requires the use of estimates of costs to be incurred for the performance of the contract.
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.
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. Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations.
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.
Any significant disruption or failure of our business systems or cybersecurity infrastructure could damage our reputation and have a material adverse effect on our business and results of operations. Data privacy, data protection, and information security may require significant resources and present certain risks.
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.
Provisions of our charter documents or Delaware law could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders.
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.
Similarly, the repurchase or redemption rights or liquidation preferences we might assign to holders of preferred stock could affect the residual value of the common stock. Risk Factors Related to Legal and Regulatory Matters Our operations could be adversely impacted by the effects of government regulations.
Previously recorded estimates of revenues and costs are adjusted as the project progresses and circumstances change. In certain circumstances, it is possible that such adjustments to estimated costs and revenues could have an adverse impact on our results of operations. Many of our contracts contain performance obligations that may subject us to penalties or additional liabilities.
Estimates of revenue and of costs to complete are adjusted based on ongoing reviews of estimated contract performance, and previously recorded estimates of revenues and costs are adjusted as the project progresses and circumstances change.
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.
If such customers were to experience financial distress or a decline in business, or if the industries our customers concentrated in were to experience a significant change in the demand for such industry’s products or services, our revenue and results of operations could be adversely impacted.
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.
Our competitors may develop products or production methods that are superior in price or quality, or incorporate artificial intelligence (AI) into their products that will make current products or services offered by us obsolete.
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.
Most of the actions against us arise out of the normal course of our performing services or manufacturing equipment.
Removed
New companies may enter the markets in which we compete, or industry consolidation may occur, further increasing competition in our markets.
Added
Accordingly, our inability to realize the full amount of our contract backlog may have an adverse impact on our business and results of operations. 8 Failure to place competitive bids and adequately project costs may result in losses on our fixed-price contracts with customers. Our products and services are typically awarded in competitive bid situations.
Removed
Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover. We place great emphasis on workplace safety in our entire organization through various safety initiatives and training.
Added
When placing bids, we may fail to adequately project costs for our customers’ projects, which may lead to us winning a bid that does not adequately compensate us for our costs. Such failure could adversely impact our results of operations.
Removed
These situations or other disruptions are outside of our control and may adversely impact our business and results of operations. 9 Risk Factors Related to our Financial Condition and Markets Global economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.
Added
Factors that could impact our ability to adequately project costs for our bids include, but are not limited to: the impacts of inflation; labor shortage; delays incurred by the failure of third-party suppliers to deliver in the quality or quantity required; unanticipated technical problems, including design or engineering issues.
Removed
Additionally, the loss of significant volume from one particular customer at one of our facilities could adversely impact the operating results of that facility.
Added
Additionally, we bear the risk of cost overruns and delays in most of our contracts and, as a result, if we fail to adequately manage such cost overruns or delays, our results of operations and our business may be adversely impacted. Supplier concentration and limited supplier capacity may adversely impact our business and results of operations.
Removed
Accordingly, the amounts recorded in backlog may not be a reliable indicator of our future operating results and may not be indicative of continuing revenue performance over future fiscal years or quarters. Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations.

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Item 2. Properties

Properties — owned and leased real estate

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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.
Biggest changeWe own 100% of the offices and facilities in the following principal locations as of September 30, 2024: 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 Houston, TX Office and warehouse facility 9.3 37,200 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 2. Properties We own our principal manufacturing and fabrication facilities and periodically lease smaller facilities throughout the U.S., Canada and the U.K. Our facilities are generally located in areas that are readily accessible to materials and labor pools and are maintained in good condition. These facilities are expected to meet our needs for the foreseeable future.
Item 2. Properties We own our principal manufacturing and fabrication facilities and periodically lease smaller facilities throughout the United States, Canada and the U.K. Our facilities are generally located in areas that are readily accessible to materials and labor pools and are maintained in good condition. These facilities are expected to meet our needs for the foreseeable future.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Removed
Item 4. Mine Safety Disclosures Not applicable. 16 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeSmith 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.
Biggest changeSmith 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. As a continuing effort to align our peer group with our industry, market capitalization, location and other factors, we have replaced A.O.
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.
The comparison assumes that $100 was invested on October 1, 2019, 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.
The stock price performance reflected on the following graph is not necessarily indicative of future stock price performance. 18 Item 6. [Reserved]
The stock price performance reflected on the following graph is not necessarily indicative of future stock price performance. 24 Item 6. [Reserved]
The 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.
(collectively, the “New Industrial Electrical Equipment Group”). The following graph compares, for the period from October 1, 2019 to September 30, 2024, 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 4, 2023, there were 240 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 November 18, 2024, there were 200 stockholders of record of our common stock.
Dividend Policy The Board anticipates declaring cash dividends in future quarters; however, there is no assurance as to future dividends or their amounts because they depend on future earnings, capital requirements, financial condition and debt covenants. 17 Performance Graph The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
However, future cash dividend payments will depend on future earnings, capital requirements, financial condition and debt covenants. 23 Performance Graph The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
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.
Smith Corporation with Sterling Infrastructure, Inc. Accordingly, the new Industrial Electrical Equipment Group is composed of Ameresco, Inc.; 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; Sterling Infrastructure, Inc.; Thermon Group Holdings Inc. and Woodward, Inc.
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.
In our Form 10-K for the fiscal year ended September 30, 2023, the performance graph included a peer index (the “Previous Industrial Electrical Equipment Group”) composed of Ameresco, Inc.; A.O.
Removed
All common stock held in street names is recorded in the Company’s stock register as being held by one stockholder. Securities Authorized for Issuance under Equity Compensation Plans See “Part III, Item 12.
Added
Dividend Policy We paid cash dividends to our common stockholders in each quarter of Fiscal 2024 and expect comparable cash dividend payments in the future.
Removed
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Annual Report for information regarding securities authorized for issuance under our equity compensation plans.

Item 7. Management's Discussion & Analysis

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

39 edited+28 added−24 removed37 unchanged
Biggest changeAdditionally, 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.
Biggest changeIn response to the increased cost environment and supply chain challenges, we strive to effectively manage our product pricing, delivery schedules and bid validity dates with our customers, as well as improve factory efficiencies and project execution, and as a result our gross margins have been improved in Fiscal 2024.
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.
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.
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.
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. 31
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.
The favorable impacts of the estimated 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.
We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will not differ from those estimates. We believe the following accounting estimates to be critical in the preparation and reporting of our consolidated financial statements.
We evaluate our estimates on an ongoing basis, based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. There can be no assurance that actual results will be consistent with those estimates. We believe the following accounting estimates to be critical in the preparation and reporting of our consolidated financial statements.
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.
Approximately $77.7 million of our cash, cash equivalents and short-term investments at September 30, 2024 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.
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.
Cash Flows Operating Activities Operating activities provided net cash of $108.7 million during Fiscal 2024 and provided net cash of $182.6 million during Fiscal 2023. Cash flow from operations is primarily influenced by project volume and margins, as well as working capital requirements, the timing of milestone payments from our customers, and payment terms with our suppliers.
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.
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, 2024 compared to the twelve months ended September 30, 2023 should be read in conjunction with the accompanying consolidated financial statements and related notes included in this Annual Report.
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.
Liquidity and Capital Resources As of September 30, 2024, current assets exceeded current liabilities by 1.8 times. Cash, cash equivalents and short-term investments increased to $358.4 million at September 30, 2024, compared to $279.0 million at September 30, 2023.
For a description of the risks and uncertainties, please see “Cautionary Statement Regarding Forward-Looking Statements; Risk Factors” and “Part I, Item 1A. Risk Factors,” included elsewhere in this Annual Report.
For a description of the risks and uncertainties, please see “Cautionary Statement Regarding Forward-Looking Statements” and Part I, Item 1A. “Risk Factors” included elsewhere in this Annual Report.
Performance Obligations A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied.
A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied.
We believe that this method is the most accurate representation of our performance because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts. Contract costs include all direct materials, labor and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs.
We believe that this method is the most accurate representation of our performance because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts.
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.
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.
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.
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, 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.
Selling, general and administrative expenses as a percentage of revenues decreased to 8% in Fiscal 2024, compared to 11% in Fiscal 2023, resulting from higher revenues on our existing cost structure.
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.
We have spent $1.5 million on the expansion project in Fiscal 2024. 28 Other Commercial Commitments We are contingently liable for letters of credit and bank guarantees totaling $71.0 million as of September 30, 2024, 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 $ 27,587 1 to 3 years 42,336 More than 3 years 1,064 Total commercial commitments $ 70,987 We also had surety bonds totaling $426.8 million that were outstanding at September 30, 2024.
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.
Executive Overview We develop, design, manufacture and service custom-engineered equipment and systems that distribute, control and monitor the flow of electrical energy and provide protection to motors, transformers and other electrically powered equipment. We are headquartered in Houston, Texas and primarily serve the oil and gas and petrochemical markets, the electric utility market, and commercial and other industrial markets.
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.
International revenues increased by 17%, or $24.5 million, to $165.8 million in Fiscal 2024. Our international revenues include both revenues generated from our international facilities as well as revenues from export projects generated at our domestic facilities.
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.
Disruptions in the global supply chain have negatively impacted and may continue to negatively impact our business and operating results due to the limited supply of, delays for and uncertainty in the timing of the receipt of key component parts and commodities.
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.
Income Tax Provision We recorded an income tax provision of $46.2 million in Fiscal 2024, resulting in an effective tax rate of 24%, compared to an income tax provision of $14.4 million in Fiscal 2023 at an effective tax rate of 21%.
Accruals for Contingent Liabilities From time to time, contingencies such as insurance-related claims, liquidated damages and legal claims arise in the normal course of business.
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. 30 Accruals for Contingent Liabilities From time to time, contingencies such as insurance-related claims, liquidated damages and legal claims arise in the normal course of business.
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.
For discussion and analysis of our financial condition and results of operations for Fiscal Year 2023 as compared to Fiscal Year 2022, please refer to Part II, Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended September 30, 2023, filed with the SEC on December 6, 2023.
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.
We believe that our cash, cash equivalents and short-term investments, as well as available borrowings under our U.S. credit facility, will be sufficient to support our future operating activities, working capital requirements, payment of dividends and capital spending, as well as research and development initiatives for the next twelve months and beyond.
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.
The Third Amendment which added Texas Capital Bank as Syndication Agent and a lender, 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.
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.
On October 4, 2023, we entered into a third amendment (the Third Amendment) to our credit agreement with Bank of America, N.A. (as amended, the U.S. Revolver).
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.
Financing Activities Net cash used in financing activities was $19.3 million during Fiscal 2024 compared to $13.1 million used during Fiscal 2023.
Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting, which precludes us from providing detailed price and volume information. Our backlog includes various projects that typically take a number of months to produce. The markets in which we participate are capital-intensive and cyclical in nature.
Results of Operations Twelve Months Ended September 30, 2024 Compared to Twelve Months Ended September 30, 2023 Revenue and Gross Profit Revenues and costs are primarily related to custom engineered-to-order equipment and systems and are accounted for under percentage-of-completion accounting, which precludes us from providing detailed price and volume information.
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.
We have the 27 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 June 26, 2024, in connection with the expected discontinuation of the publication of the Canadian Dollar Offered Rate (CDOR), we further amended the U.S.
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.
Revolver, and letters of credit outstanding were $63.8 million. There was $86.2 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of September 30, 2024. For further information regarding our debt, see Notes G and H of Notes to Consolidated Financial Statements.
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.
This increase in gross profit is attributable to the higher volume levels across all of Powell's manufacturing facilities generating favorable volume leverage, strong project execution, and continuing effort to improve factory efficiencies while also managing product pricing that corresponds to current cost levels.
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.
The North American market is responding to increased international demand for LNG and gas-to-chemical processes utilizing low-cost gas feedstocks.
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.
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. Critical Accounting Estimates The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States (U.S.
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.
The decrease in cash used in investing activities during Fiscal 2024 was primarily due to lower net purchase of short-term investments, partially offset by higher capital spending on property, plant and equipment in Fiscal 2024. During Fiscal 2024, our purchase of short-term investments was $9.7 million compared with net purchase of short-term investments of $18.8 million in Fiscal 2023.
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.
As amended by the Third Amendment, the lesser of (a) $60 million, (b) 60% of available cash, and (c) the aggregate face amount of the issued but undrawn letters of credit that are not cash-secured shall be deducted from consolidated funded indebtedness, when calculating the consolidated net leverage ratio.
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.
In Fiscal 2024, revenue from our core oil and gas market (excluding petrochemical) increased by 53%, or $144.1 million, to $417.2 million in Fiscal 2024; petrochemical market revenue increased by 97%, or $91.4 million, to $185.6 million; revenue from our electric utility market increased by 18%, or $28.1 million, to $186.5 million; commercial and other industrial market revenue increased by 44%, or $45.9 million, to $149.9 million; and revenue from all other markets combined increased by 23%, or $9.6 million to $51.1 million.
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.
The effect of any impairment would be reflected in operating income in the Consolidated Statements of Operations.
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.
Net Income In Fiscal 2024, we recorded net income of $149.8 million, or $12.29 per diluted share, compared to net income of $54.5 million, or $4.50 per diluted share in Fiscal 2023. This increase in net income is primarily due to higher revenues coupled with improved gross profit margins, as well as our disciplined cost structure.
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.
Selling, General and Administrative Expenses Selling, general and administrative expenses increased by 8%, or $6.1 million, to $84.9 million in Fiscal 2024, primarily due to increased compensation expense and higher spending on infrastructure improvements.
The tax benefit was partially offset by certain non-deductible items, the tax expense related to the gain on the disposition of a small, non-core division of our Canadian operations and the tax impact of U.S. global intangible income.
In Fiscal 2024, the effective tax rate was favorably impacted by the estimated Research and Development (R&D) Tax Credit and tax benefits related to the vesting of restricted stock units. These items were offset by state income tax expense, certain non-deductible items, and the tax impact of U.S. global intangible income.
Removed
We have elected to omit discussion on the earliest of the three years covered by the consolidated financial statements presented. Refer to Item 7.
Added
Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities. We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels.
Removed
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.
Added
For additional information on the markets we serve, see “Markets” in Part I, Item 1 of this Annual Report. In Fiscal 2024, we reported revenues of $1.0 billion, net income of $149.8 million, and generated $108.7 million in cash from operating activities. As of September 30, 2024, we had total assets of $928.2 million.
Removed
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.
Added
Outlook Our backlog was $1.3 billion as of September 30, 2024, of which approximately $849 million is expected to be recognized as revenue during our fiscal year ending September 30, 2025.
Removed
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.
Added
Although current commercial activity remains active in most of the markets that we compete in, we remain attentive to the macro environment and geopolitical events that may have an impact on future market activity. Oil and gas and petrochemical markets. Our order activity remains strong in these markets.
Removed
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.
Added
We believe the fundamentals of the U.S. natural gas market, through abundant supply and low cost, will continue to support investments in LNG, related gas processing, and petrochemical processes, and as a result, will continue to sustain our order activity associated with such markets.
Removed
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.
Added
In addition to the traditional crude oil refining and other oil and gas downstream processes, we have recently expanded our end markets into hydrogen production, carbon capture as well as alternative fuels, such as biofuels and sustainable aviation fuel, in response to the demand for clean energy. Electric utility market.
Removed
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.
Added
Aligned with our strategy of end-market diversification, we seek to continue our focus and growth in electrical distribution substations, while also addressing a resurgence of power generation investment in this market. Commercial and other industrial markets.
Removed
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.
Added
We have experienced strong growth in these end markets driven by a mix of factors including increased investment in commercial and light industrial facilities for the production of various goods, the expansion of data centers and cloud computing, as well as the growing demand in industrial applications to support new technologies driving the energy transition.
Removed
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.
Added
We are cautiously optimistic regarding the anticipated investment across AI applications that may drive data center growth and subsequently power generation demand. 25 Business Environment The markets in which we participate are capital-intensive and cyclical in nature.
Removed
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.
Added
We continue to remain focused on the variables that impact our markets as well as cost management, labor availability and supply chain challenges. We are subject to inflation, which can cause increases in our costs of labor, indirect expenses and raw materials, primarily copper, aluminum and steel.
Removed
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.
Added
Fixed-price contracts can limit our ability to pass these increases to our customers, thus negatively impacting our earnings and operations in future periods. During Fiscal 2024, we experienced commodity price volatility, in addition to the ongoing supply chain delays for specific engineered components that have been persistent. We are working closely with our suppliers to meet our customer commitments.
Removed
This increase in backlog is driven primarily from our oil and gas markets, including LNG, petrochemical, utility and commercial and other industrial markets.
Added
Revenues increased by 45%, or $313.0 million, to $1.0 billion in Fiscal 2024, primarily driven by the increase in project backlog resulting from large contracts awarded during Fiscal 2023 and strong bookings throughout Fiscal 2024. Domestic revenues increased by 52%, or $288.6 million, to $846.5 million in Fiscal 2024.
Removed
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.
Added
These increases in revenue were driven by improved market conditions in most of our end markets, increased capital spending in our core oil, gas and petrochemical markets, as well as our strategic effort to expand our business into electric utility and commercial and other industrial markets.
Removed
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.
Added
Revenue from our light rail traction power market decreased by 22%, or $6.1 million, to $22.0 million in Fiscal 2024 due to less project volume in this market.
Removed
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.
Added
For additional information on the markets we serve, see “Markets” in Part I, Item 1 of this Annual Report. 26 Gross profit increased by 85%, or $125.5 million, to $273.1 million in Fiscal 2024. Gross profit as a percentage of revenues increased to 27% in Fiscal 2024 as compared to 21% in Fiscal 2023.
Removed
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.
Added
In Fiscal 2023, the effective tax rate approximated the U.S. federal statutory rate.
Removed
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.
Added
Backlog The order backlog, which is our remaining unsatisfied performance obligations, represents the estimated transaction price for goods and services for which we have a material right, but work has not been performed. The order backlog at September 30, 2024 was $1.3 billion, consistent with our backlog at September 30, 2023.
Removed
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.
Added
Bookings, net of cancellations and scope reductions, decreased by 24% in Fiscal 2024 to $1.1 billion, compared to $1.4 billion in Fiscal 2023. Despite strong bookings in Fiscal 2024, the decrease in bookings was due to a normalization of the oil and gas sector with fewer large orders awarded in this sector during Fiscal 2024.
Removed
These favorable billing milestones along with our increase in project backlog are the primary drivers for the increase at September 30, 2023.
Added
This increase in cash, cash equivalents and short-term investments was primarily driven by our improved earnings due to increased project margins and volumes, partially offset by working capital allocated to projects in our order book, capital spending, as well as dividend payments.
Removed
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.
Added
The aggregate commitment of $150.0 million consists of $100.0 million committed by Bank of America and $50.0 million committed by Texas Capital Bank.
Removed
Our most restrictive covenant, the consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness, which includes letters of credit. An increase in indebtedness or a decrease in EBITDAS could restrict our ability to issue letters of credit or borrow under the U.S. Revolver.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

9 edited+2 added−5 removed1 unchanged
Biggest changeFluctuations 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.
Biggest changeForeign 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. Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in market conditions, commodity prices, foreign currency transactions and interest rates.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to certain market risks arising from transactions we have entered into in the normal course of business. These risks primarily relate to fluctuations in commodity prices, foreign currency transactions and interest rates.
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
Revolver as of both September 30, 2024 and 2023, we have not experienced any significant interest rate risk for each of the periods presented in our Consolidated Statements of Operations. 32
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.
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. Interest Rate Risk If we borrow 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 gross margin. During Fiscal 2022, we entered into a derivative contract to hedge a portion of our exposure to commodity price risk.
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. We enter into derivative contracts to hedge a portion of our exposure to commodity price risk. These contracts were immaterial to our earnings and cash flows for Fiscal 2024, 2023 and 2022.
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.
Revolver, we will be subject to market risk resulting from changes in interest rates related to our floating rate bank credit facility. Because we did not have any outstanding borrowings under our U.S.
This 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.
In the future, we may enter into additional derivative contracts to further hedge our exposure to commodity price risk. Even though we continue to experience price volatility with some of our key raw materials and components, with the consideration of our hedging strategy, we believe our exposure to commodity price risk is minimal.
We believe the exposure to the effects that fluctuating foreign currencies have on our consolidated results of operations is limited because the foreign operations primarily invoice customers and collect payments in their respective local currencies or U.S. Dollars. Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies.
The resulting translation adjustments are recorded as accumulated other comprehensive loss, a component of stockholders’ equity in our Consolidated Balance Sheets. We believe the exposure to the effects that fluctuating foreign currencies have on our consolidated results of operations is limited because the foreign operations primarily invoice customers and collect payments in their respective local currencies or U.S. Dollars.
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.
Our accumulated other comprehensive loss, which is included as a component of stockholders’ equity, was $24.4 million as of September 30, 2024, a decrease of $2.5 million compared to September 30, 2023.
Removed
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.
Added
Additionally, expenses associated with these transactions are generally contracted and paid for in the same local currencies. Our realized foreign exchange loss was $0.8 million and $0.4 million, respectively for Fiscal 2024 and Fiscal 2023. These losses were included in selling, general and administrative expenses in our Consolidated Statements of Operations.
Removed
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.
Added
From time to time, our foreign subsidiaries may enter into foreign exchange forward contracts to hedge their foreign currency exposures, if any. These contracts were insignificant to our earnings and cash flows for Fiscal 2024, 2023 and 2022. We do not typically hedge our exposure to potential foreign currency translation adjustments.
Removed
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.
Removed
Fixed-price contracts may limit our ability to pass cost increases to our customers, thus negatively impacting our earnings.
Removed
Amounts invested in our foreign operations are translated into U.S. Dollars at the exchange rates in effect at the balance sheet date. The resulting translation adjustments are recorded as accumulated other comprehensive loss, a component of stockholders’ equity in our Consolidated Balance Sheets.

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