Powell Industries, Inc. (POWL) Q2 2008 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen. Thank you so much for standing by, and welcome to the Powell Industries’ Second Quarter 2008 Conference Call. [Operator Instructions] I will now turn the conference over to Ms. Karen Roan with DRG&E. Please go ahead.

Thanks you, Michael, and good morning, everyone. We appreciate your joining us for Powell Industries’ conference call today to review fiscal 2008 second quarter results. We would also like to welcome our internet participants listening to the call simulcast live over the internet. Before I turn the call over to management, I have the normal details to cover. You could have received a fax or e-mail of the news release this morning. Occasionally, there are difficulties experienced during these broadcasts. So if you did not get your release, please call our offices at DRG&E at 713-529-6600, and we will get one to you. Also if you want to be on the permanent e-mail distribution list, please relay that information to us. There will be a replay of today’s call, and it will be available via webcast by going to the company’s website at www.powellind.com, or a recorded replay will be available until May 14th, and information on how to access the replay was provided in today’s news release. Please note that information reported on this call speaks only as of today, May 7th, 2008, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. As you know, this conference call includes certain statements, including statements relating to the company’s expectations of its future operating results that may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials, and execution of business strategies. For further information, please refer to the company’s filings with the Securities and Exchange Commission. Now with me this morning are Tom Powell, the company’s Chief Executive Officer; Pat McDonald, President and Chief Operating Officer; and Don Madison, Executive Vice President and Chief Financial and Administrative Officer. I will now turn the call over to Tom.

Thank you, Karen. Good morning. Thank you for joining us today to review our fiscal ‘08 second quarter results. I will make a few comments about the quarter and our markets, and then I will turn it over to Pat and Don for a more detailed discussion. I feel like I am repeating myself because again not a lot has changed in the three months since our last conference call, except our results and our outlook are much better. Our markets remain strong, and we continue to see high levels of project activity. And as our results indicate, we are well positioned in our key markets and continue to close business very successfully. We had a strong second quarter with solid bookings of $196 million. We have another record backlog of 537 million, and earnings are up 65% over the first quarter of this year. Inquiry levels from our customer base remains – remained high, and more importantly we still have not seen the effect of recession worries in our markets. The long-term requirements of both the oil and gas and the electrical power industries continue to drive our positive outlook. We continue to see numerous opportunities in the key sectors of utility, energy, transit and mining, and we expect to continue to benefit from those prospects. I will now turn the call over to our President, Chief Operating Officer, Pat McDonald.

Thank you, Tom. Operationally the Power/Vac transition is complete, with all manufacturing and assembly now in Houston. We continue to strengthen the work force in the new facility, and expect as we have discussed previously that it will take two to four quarters before we are up to desired output levels. So we still have these benefits ahead of us. Our recent focus has been on improving our customer service levels, and we are very close to achieving our objectives. Through our strategic alliance with GE, we are working to develop opportunities for both companies, especially in Canada and Latin America. Regarding the balance of the organization, our focus and efforts are still on training our people and perfecting our processes. We continue to bring in new talent to the organization, and we are seeing the work force maturing as the result of the training and the time on the job. The entire oil and gas industry is currently operating at record levels. This has put tremendous pressure on the infrastructure to support all of the capital projects on the board. We are experiencing some supply chain constraints, particularly with components. We are also seeing these pressures on the – as the EPC firms are staffing up to handle the volume the same as Powell. There is no doubt that the world economy and demand for oil have resulted in upward pricing pressure that is now manifesting itself in commodity price inflation. We try to stay in front of these rising commodity costs by anticipating and raising prices accordingly, but the element of risk is increasing again. We continue our practice of buy forward on commodities to maintain margins as much as possible. With the expectation that our utility customers will be developing plans and options for nuclear power, we are investigating and making plans to support their product and project requirements. Strategically, we consistently rely on our customers and their requirements to assist us as we look at new and advanced product needs, which will prioritize our R&D efforts. Our operational tactics are very simple, listen to and work with our customers and their engineering firms, manage the timing of the business in accordance with our backlog and our customers’ needs, and execute the timely production and delivery of their projects. Now, I will turn the call over to our Chief Financial Officer, Don Madison to review the financial results.

Thank you, Pat. Revenues were $160.3 million in the second quarter of fiscal 2008 compared to $141.9 million in the second quarter of fiscal 2007. We continue to experience strong demand for our products and services. Gross margin for the second quarter was 19.1%, compared to 16% in last year’s second quarter. Looking at our historical operations, which excludes the direct impact of the acquired Power/Vac product lines -- excuse me – gross margin for the quarter was 22.3%, compared to 19% a year ago. Gross profit has improved as a result of improved pricing and productivity, as well as the favorable impact from the successful completion of certain jobs with margins that exceeded expectations. Selling, general and administrative expenses were 13.1% of revenues in the second quarter, compared to 13% of revenues in the second quarter of 2007. SG&A expenses were $21 million for the second quarter compared to $18.5 million for the second quarter a year ago. Expenses increased primarily due to increased cost related to the Power/Vac product lines, and increased compensation expenses including cash and non-cash equity incentives, which are consistent with the increase in volume and earnings. Interest expense in the second quarter was $771,000, a decrease of approximately $148,000 from year ago. Interest income was $86,000 compared to $120,000 in the second quarter of 2007. Our provisions for income taxes reflect an effective tax rate on earnings before income taxes of 35.8%. Net income in the second quarter of fiscal 2008 was $6 million or $0.53 per diluted share, compared to $2.3 million or $0.20 per diluted share in the second quarter of 2007. For the six months ended March 31st, 2008 revenues were $307.5 million, compared to $264.7 million in the same period a year ago. Revenues increased due to the continued strength in our primary markets and a strong backlog. Gross margins was 18.7% for the six months period compared to 16.2% a year ago. Gross margin in our historical operations, which excludes the direct impact of acquired Power/Vac product lines, for the six months period was 21.9% compared to 18.8% last year. Year-to-date, selling, general and administrative expenses were 13.4% of revenues compared to 13.1% of revenues for the first six months of 2007. SG&A expenses were $41.1 million compared to $34.7 million a year ago. Interest expense for the six months ended March 31st, 2008 was $1.6 million, unchanged from a year ago. For the six months period interest income decreased by $99,000 to $201,000 compared to the same period in 2007. Year-to-date, our provision for income taxes reflects an effective tax rate on earnings before income taxes of 36.1%. For the six months ended March 31st, 2008, net income was $9.6 million or $0.84 per diluted share compared to $4.3 million or $0.39 per diluted share a year ago. As of March 31st, 2008, our order backlog was $536.5 million compared to $501.7 million at December 31st, 2007, and $407.6 million at the end of the second quarter a year ago. New orders remained strong, totaling $196.2 million in the second quarter compared to $167.7 million in the second quarter of fiscal 2007. Year-to-date, cash used by operating activities was $9.6 million. Cash flow from operations is primarily influenced by demand for our products and services and is negatively impacted as our progress payment terms on projects with our customers typically extend beyond the payment terms with suppliers. The payment of annual incentive compensation earned in 2007 and the first six months of fiscal 2008 along with higher levels of inventory needed to support our existing backlog has negatively impacted cash flow from operations. Investments in property, plant and equipment during the first six months totaled approximately $1.5 million compared to $9.7 million in the first six months of fiscal 2007. At March 31st, 2008, we had cash and cash equivalents of $7.8 million compared to $5.3 million at September 30th, 2007. Long-term debt and capital lease obligations, including current maturities, totaled $45.9 million at March 31st, 2008, compared to $35.8 million at September 30th, 2007. Looking ahead, we now expect full year fiscal 2008 revenues to range between $650 million and $660 million, and full year earnings to range between $1.85 and $2.10 per diluted share. At this point, I will turn it back to Tom.

Thank you, Don. Let me make a few more remarks and then we will be happy to take your questions. Over the past several quarters, we have seen a great deal of capital investment in the oil and gas sector. Recently there have been a number of very large scale domestic refining projects, in which we have been highly successful. While the refining market remains very strong, going forward, we expect growth in this sector primarily consist of more traditional size projects both in upgrades and environment improvements. I don’t want to imply a slowdown, as there will be a large number of smaller projects. Regarding offshore business, we are seeing a great deal of activity with more deep water exploration occurring. It bodes well for us in the future with our power control modules for offshore production platforms. We have also been highly successful in the utility sector, and we expect this market to continue on this pace if not improve in the coming months and year. Our transit market continues to be strong, and as you know, it’s subject to continued government financing. By my nature, I am generally conservative, and I don’t like to promise what we can’t deliver, but frankly it’s rather difficult to hold back our activity and given the opportunities that we are seeing. Activity and opportunities at all of our primary markets remain healthy, and we are confident that we will continue to participate in the growth of these markets into the foreseeable future. And at this point, we will be happy to answer any questions that you might have. Thank you.

Thank you, sir. (Operator Instructions). Also in the interest of time, we ask that you please ask one question and one follow-up initially and then re-queue for any additional questions. Our first question is from the line of John Franzreb with Sidoti. Please go ahead.

Good morning, guys. Great job, today.

Good morning, John.

Thank you.

Listen, could you just talk a little bit about what’s going on with the Power/Vac, the new labor force, you – Pat, you implied that there is certainly opportunities to improve the margin and productivity over there, can you just give a little bit more background color on what’s that you are taking in, and why the timeline is so long?

Well, John. We have always talked about how long it would take. Again remember, we brought in a whole new work force to take on this product line as we transition it from Burlington, Iowa with a work force there that averaged more than 25 years worth seniority, so it’s a new work force out here, one. It’s a new product for this work force to be working on. So as we have transitioned it, we are now working on the productivity in being able to be very consistent in what we do, how it flows down the product line, making sure that all the parts and pieces are there and available for the organization to be able to produce the equipment on an ongoing basis. And we continue to look at how we configure the facility to make sure that we make the productivities that we are looking for.

Are you through with your recruiting expenses kind of associated with staffing up that line?

Well, again remember, there are two areas of staffing and growth in our employment levels. One is for that business. The other is for the tremendous volume that we have across all of Powell. So, we are still hiring, not at the pace that we were for our Kurland facility, but we continue to hire throughout the entire organization, and we will continue to have hiring expenses and training expenses for those people continuing out for quite some time.

Okay. One follow-up question then, the Port Arthur project that $50 million, is that all part of backlog or...?

Yeah. It is all part of backlog.

Okay. So already in there. So would it be fair to assume that we would see, I mean, that was a big number for the quarter, that backlog would drift down next quarter, would that be a fair assumption or no?

John, I want to make sure, we announced that in the $50 million order. However, that is actually over two quarters. We had part of that order back in the first quarter booked in, and then part of the order, almost half and half, booked in the second quarter.

Okay. That’s helpful. So are you implying that this – the backlog is sustainable at this level or should we be bracing for maybe a drift down next quarter?

Well again, it’s too hard to predict exactly where it’s going to be, as Tom pointed out. We still see our activity to be strong.

Right.

However, we see that to be more in the smaller projects of the refining and petroleum business as opposed to what we have seen in these large major projects that have been coming in.

Okay. Great. Thanks a lot, guys.

Well, thank you. Our next question is from the line of Fred Buonocore with CJS Securities. Please go ahead.

Hi. You actually have Arnie Ursaner from CJS Securities. Good morning.

Good morning, Arnie.

A couple of quick questions. Obviously, 22% gross margin in the quarter was if not at record, certainly approaching record levels, and you achieved it despite dramatically higher raw material costs and also continuing inefficiencies. How should we think about this over the next six quarters or so?

Arnie, I mean, it’s going to go up and down as we are talking about right now. You are right. We are seeing commodity increases going up, and we do try to anticipate those again as we said in our pricing configuration. There is always some timing element to those that we may be in a detriment or into a positive situation. I think, as you have seen over the last successive quarters, the rate of improvement has been slowing somewhat, and it’s going to be up and down quarter-by-quarter. We also, as Don pointed out, had some very favorable projects that closed out in our second quarter, which had a nice impact on our margin levels. And that also will be subject to fluctuation quarter-to-quarter as we go out.

Okay.

Keep in mind, we are a project business, and that sequential changes quarter-to-quarter are hard to interpret trend. And this quarter, we had a very favorable set of order flows out near completion, and we got benefit from that. We can’t anticipate that we will get that same level of benefit necessarily in each and every quarter. Over a period of year, they average out.

Yeah. But I think, where I am going with this, Don, is to the extent next year is the driver of valuation for your stock, and you can improve margins by 100 to 200 basis points that has an enormous impact on the profitability you might achieve. It’s not a rounding error; it’s a very sizable difference?

There are still opportunities in front of us, offset by increased risk of commodity costs as we go into the future.

Two more very quick questions, if I can. You have always disclosed a step function once you have got Texas up and running, you would able to basically reduce or eliminate the expenses related to Iowa. Now that you have essentially achieved that step function, what sort of head count reduction are we likely to see, and I assume we will see it in this quarter?

You will not see any head count reductions from the Powell perspective, what you would – what you will see is the elimination of costs that we have incurred from a contract basis from GE. Those costs have now been eliminated, and they were substantially eliminated about mid-quarter. That also benefited this particular period of time. We finally – we finalized the transition of all products to Powell at the end of February; March was substantially on our own.

Okay. And when you have a large number of smaller projects, are margins similar on that?

They can be very similar; hopefully they turn a little bit quicker. And you don’t have the major coordination that goes on with these big projects.

Complexity is more of an issue as far as profitability as opposed to size.

Thank you very much.

All right, thank you. Our next question is from the line of Craig Bell with SMH Capital. Please go ahead.

Yes. Good morning. Just sort of following up on the margins for the Power/Vac line as it move through the next several quarters here. How do you see those margins progressing, is it going to be more incremental improvements or do you expect, since you had the transition completed sort of mid-quarter that we saw the noticeable step up there. It is going to be more incremental, or you – do you expect to see another significant jump forward on that?

I think, it’s going to be more of an incremental. Again as Don pointed out, we were significantly clear by mid-quarter, and finished by the end of February. And from here on out, our growth in that area is going to be on our own performance. And how well our own workforce rises to the task, and gets used to what they are doing and becomes very predictable in what they do.

Okay. And then Pat in your prepared remarks you were talking about the two to four months to ramp-up the productivity on that. Once you get through that time period, I mean, do the margins on the Power/Vac start to look a lot like the legacy Powell products?

Again remember, it was two to four quarters, we talked about...

Right.

-- not two to four months.

I am sorry – it’s my math.

Don’t compress the...

Yeah.

-- time too much there. Again, we are serving similar markets and some markets that aren’t similar, but switchgear products and the way we price, we see that they should be somewhat comparable in the marketplace.

Okay. And then just quickly on your CapEx spending, we have – last call you talked about targeting sort of 8 to $10 million range for fiscal ‘08. You have only done about 1.5 million of that so far, are you – is that still kind of the range that you are looking at?

Probably not, we had some – as we talked about, the last one, we drew some of the CapEx into the tail end of last year. I think, we won’t hit that 8 to $10 million range.

Okay. And the spending that you are still doing, is that still just focused on driving throughput?

Throughput and material of throughput.

Okay. Great. Thanks, guys.

All right, thank you. [Operator Instructions]. Sean Boyd with Westcliff Capital Management. Please go ahead with your question.

Good morning, gentlemen. Congrats on the quarter.

Thanks, Sean.

Just a couple of follow-ups, if I may, on the material costs, with what we are seeing in copper so far, can you just remind us as to how you are pricing those contracts, and what you are doing on the forward pricing, how you are looking at the forward pricing in the commodity?

Again, great question. We continue to look out to the time of our backlog and the time of quotation, and we try to anticipate where our commodity prices are going to be. We try to use that as part of the basis of our quotation of what that commodity will be at the time that we have to procure and deliver to our customer. So part of it comes into the pricing side of it. At the point in time that the contract is awarded to Powell, and we actually engineer it and have a fairly clear picture of the amount and type of commodity that is going to be required for that project. If we see an advantage or if we see a disadvantage that might be coming towards us, then we will look at that quantity and go out and buy forward a contract on those commodities for that kind of delivery.

Okay. And given the performance in the quarter, and the change in the guidance for the full year, that is clearly working so far?

We are proud of what we are doing at this moment in time, yes.

Very good. On the order growth, in the first half of the year, it looks like we are up about 21% year-over-year. I know on the last call we talked about turning down some short cycle jobs here and there. It sounded as though from the comments given so far today, not much has changed on the demand side, it’s fairly robust all the way around. Is there – are we still turning down the short cycle jobs, or is there the ability to goose that order growth further.

Well again, we always have to look at exactly, what a customer is asking us to do. We don’t just flat out turndown anything if we reasonably expect that we can do it, not disadvantaging other customer. When it comes to projects with PCRs, again, we have to be very careful because of the schedule, the backlog, and how much room and space a power control room takes up on the factory floor. We have had some very good success, where we have had switchgear only orders, and with some of the process improvements that we were doing out on the factory floor, we have been able to improve some delivery times and take some shorter cycle times with that. And we have been able to actually deliver those in a very compressed time schedule with complexity. And we are also doing that very well with our Power/Vac product line especially as it relates to our box frame, bell frames, compartment kits, the shorter cycle things like that. We have been reducing our lead times there and have been able to cycle those products fairly quickly. So, it depends on the complexity in what we have.

Okay. So in the backlog right now, Pat, how far out do those jobs go, what’s the range?

We are out nine months plus in a lot of jobs, and the big project jobs range out well over a year.

At this point in time, the – I don’t think we have anything substantial that goes out beyond 24 months.

Okay. That’s helpful. Last question from me, and then I will jump back in the queue. The CapEx, in that comment earlier maybe think that at this point we are in pretty good shape in terms of capacity from our existing facilities as opposed to thinking about any kind of expansion right now?

Well, we are continuing to monitor it. We continue to work on our throughput. And we will look forward as this market continues and tells us where we need to be in our capacity.

Okay. I will jump back in the queue. Thanks.

All right, thank you. Our next question is from the line of Tom Spiro with Spiro Capital Management. Please go ahead.

Good morning.

Hey, Tom.

Hello, Tom.

Congratulations on such a fine quarter, I wondered if we might get a little clearer picture of S&I. How is S&I fairing these days?

S&I continues to do well. I would tell you that again the competition that S&I goes through on IEC product line is a very different type of competition then what we have here domestically, especially with our oil and gas business, because they are competing with a lot of local assembly of major companies, and suppliers. But they continue to do well. They continue to focus strong with the team here on the EPC companies and the oil companies that we have in common. So it’s doing very well.

Any plans to expand either personnel or physical plant?

Yeah. We continue to – the plant, I don’t see us doing that, but we continue to as we do here, we will work on the throughput in the plant. That is a nice plant, nice facility. We just need to continue to work on our throughput to be able to handle more volume.

Speaking of throughput, if I focus here domestically, and on what I would call core Powell, not – that is ex Power/Vac, you have mentioned in the last couple or three quarters that there have been some productivity challenges braced by many new employees. Can you give us a sense of how those – that’s progressing, are we sort of narrowing the negative variance so to speak, is it widening, how do you measure it, and what does it look like?

Well, I think, when you look at the margins you would have to say that we are narrowing it, because our margins continue to improve and not all of it is in price area. I feel very good that our people come up to speed fairly quickly in the timescales that we look at six to nine months with this. And that’s not only here, it’s also our North Canton division, all of our division have been adding people, and so you know that is spread amongst all of our divisions and they are doing very well at getting them up to speed and seeing the productivity improvements out of it.

And lastly could you give us an update on the process side of the company, please? I think, at last conference call there was a mention of possibly a couple of jobs out there we might win, where does all that stand?

Tom, this is Tom Powell. We have booked several smaller to medium sized projects, the two or three very large projects that are out there we are still short-listed; we are probably just one of two bidders on those projects. I believe those projects will probably be let later this month or two.

One.

Yeah. One of them.

Tom is saying that one of the three is currently now scheduled to be let in the next four weeks or so.

So we are still short-listed. They are still asking an awful lot of questions which is encouraging, but we don’t have anything to report on at this time.

Thanks much.

Yes.

All right, thank you. Our next question is coming from the line of George Gaspar with Robert W. Baird. Please go ahead.

Yes. Good morning to everyone.

Hey, George, you’re still alive. I had to talk. Good to hear from you, buddy, I was asking about you.

Yes, sir. Yes, sir. Well you know, in 1989, you were at four when I started following, and 11 times that, now you have got to accelerate that, okay.

Yes, sir.

My first question is on Powell/Vac, the capacity that you have in your new plant versus the capacity that was able to come out Iowa; can you give us a comparison on that annual capacity potential?

Okay. You are talking Power/Vac not Powell/Vac.

Yeah.

Power/Vac, yeah, excuse me.

The capacity – we have set the capacity line up to do what Burlington was capable of doing and what they had seen in their last so many years. Again, as we mature this work force, I am sure we will be able to bump that capacity up as the market dictates. We have got a nice facility. We have got good lines, so I am pleased with what we are capable of doing in the future.

Okay. All right. And then in terms of the backlog, on the – can you define at all what is involving LNG related electrical equipment versus the refinery petrochemical area, or can’t you break that out?

We have not recently seen a lot of the LNG. Most of our business that we are seeing right now is our basic refining and chemical processing, where everybody is adding to or improving the refining lack of capacity that was in North America.

Oh, okay. All right. And then, I think, I don’t know, you may have mentioned this, but when you define this backlog, what’s international versus domestic?

When you are looking at this year, we have seen a shift, a little bit back to the strength of the domestic market due to where the projects are being implemented at the current time. When you are looking at where we are during the first six months, we are a little below 30%, around 28, 29% thus far this year.

And that 28, 29 is...

Is total revenue.

Is...

In international.

Is international?

Compared to about 35% last year.

I got you. Okay. All right. And then question on the outlook for any possible acquisitions that you still might be seeking, is there any specific area that you now see an opportunity to add on to that you would like to accomplish?

There is always opportunities, George, and we are certainly exploring and looking, but frankly I think, it would behoove us to digest some of the backlog and some of the issues that are currently facing us, but we are not going to pass up any opportunities.

Okay. And then lastly on process control, what’s your strategy at this point? I know from time-to-time, there it’s been a thought process of potentially making that available for sale, divestiture, or something, but it looks like there is a little improvement taking place although the revenue stream is a little lower, how do you feel about...?

George, you have always pushed me on that subject, and we’ve never really discussed any plans there, but certainly we are very pleased with the results of Transdyn and we will keep our eye on that subsidiary, and do what’s best for the shareholders and for the employees of that group.

Okay. All right. Well, keep up the good work, guys. You have really got a great opportunity out there right now. Take care.

Thank you, George. Nice to talk to you.

Thank you.

Thank you. Our next question is from the line of J.D. Padgett with Boston Company. Please go ahead.

Yeah. Hi, guys. A couple of quick ones. One on the larger potential opportunities you are just discussing are those mostly international?

No. Those have been domestic.

Okay. So, those couple where we could see something let in the next month or two are domestic?

No. The big projects that we were talking – are you talking about the process control?

It was just a question one or two back about some of these bigger ones that we are tracking?

When you are looking at our order intake most of the large contracts come domestically. When you are looking at the prospect that Tom was referring to that we have about three large prospects in the process control group, that is in mix of both domestic and international opportunities.

Correct.

Okay. And is any of that on the power generation transmission side or is that mostly petrochem and...?

The process control, most of that is going to be municipal control type from transportation or from a process facility.

Okay. Do you have any reach into any of the larger projects that are looming out there for power in the – on the international front?

Yes. We do have inquiries in house, and we continue to look at those. And we are working some of those with the IEC side with S&I.

Okay. And the other question was – I think, I missed the metric that you gave the gross margin for this last quarter; excluding Power/Vac was what?

Gross margins this last quarter excluding – should have it memorized, give me a second. Excluding, it was 22.3 for the quarter, 21.9 for the six months period.

Okay. And is there an expectation over time that the Power/Vac business can be brought up in line with that, or is there something different structurally with that business versus your core business?

When you are looking at the market we serve, we do not see material difference in the business long term. Once we reach our effectiveness and efficiency that we have targeted that will not hinder us in reaching our overall objectives for the corporation.

Okay. So over time, you would look to continue to push up on the Power/Vac side, get it up into the low 20s as well?

That is correct.

Okay. Great. Nice job. Thank you.

Thank you.

(Operator Instructions) We have a follow-up from the line of Sean Boyd. Please go ahead.

Hi, guys, have I still got you?

Yes.

Yes.

Great. Real quick, Don, when I back into – well, when I just look back at my notes, I see that March quarter, a year ago, we had kind of a nice bump on the Power/Vac sales and so, I am wondering, and I know that, we are still working out the kinks and it’s fairly flat this year, year-over-year, if you back out the Power/Vac, and just look at pure electrical power products without that, are we still looking at 20 – I am getting to like 21% year-over-year revenue growth, versus the reported was 13?

If you look at – year-over-year – I am sorry, 13 for...

Well, electrical power products did 13% growth year-over-year.

Oh, growth, year-over-year.

On – correct. And what I am looking at is if I exclude the decline in the Power/Vac.

If you exclude the Power/Vac – the Power/Vac product line year-over-year was roughly flat. We are still running at plus or minus $80 million. So that it will come, as that we are just over $20 million, last year we did 86. This year we will probably end up somewhere about the same place, somewhere between 80 and 85. So that’s gives you an order of magnitude to try to factor into the overall business.

Okay. That Power/Vac line was like 26 million in the March quarter a year ago.

March quarter, a year ago, it was...

26.

It was 26, yes.

Okay. So, if I am looking at 26 dropping to let’s call it 20, 21 million. If you pull out that decline your electrical power products business is growing 20 plus percent?

That would be the math, that’s correct.

Okay. Second question, Pat, in your comment you mentioned the components, supply chain constraints, especially in components, and then something else on the EPC firms. Can you just give us a little more color on both of these?

Sure. On the component side, again, we do buy a lot of components from people, transformers, motor control center, a lot of different products, and all of our suppliers are seeing the same volume hit them and so there are issues with supply and timeliness of that supply that at times holds up some of our projects. So those are the issues that we are having on the component side. As it relates to the EPC companies. They are having to hire just the same as we are and they have great numbers of requests for people to come on board. And when they do that, they have the same learning curve issues, time to be of a quality organization, and you have to work through those issues within at the same time that we are growing.

Okay. So this sounds like the normal blocking and tackling we have been doing in the tight environment for a while now?

I don’t think I have ever seen one quite like this. I mean, when I look at the numbers of people that the EPC companies are trying to hire at this point in time. I can’t recall in my professional carrier, I have ever seeing that size.

For last 18 months...

Yeah.

Got it. Okay. That’s helpful. The other question for you. When I was thinking about that last call or that last question on the margins, and specifically that pre-tax margin on process control jumping up significantly this quarter. Were there maybe some completions of particular contracts that pop that up and if so do we think that we should see that drop back down in the coming quarters?

That is correct. I mean, the process control business is a project business, it’s like the rest of Powell, and they can’t experience short-term changes. When the order closes out towards the end of a project, and they did have some more to close out that occurred in the current quarter, that benefited them.

Okay. So that business has been running at a 3 to 4% pre-tax margin before this quarter. Think about that going back to that or some level higher?

That would be more like looking at the weighted average, because at the end you are going to have good quarters, and you are going to have quarters that don’t have the same benefits, and over time they will average out.

Weighted average are the first passed on?

Yes.

Okay. That’s helpful. Thank you. And just last question if I may. Tom, in your very early comment, you mentioned the strength in utility, energy, transit and mining. Can you just remind us what we are doing in mining? Is that in putting mills on the grid and power sourcing mills or what in particular are we doing there?

That’s no so much mills, it’s international opportunities and new mines opening up, both in Latin America, Indonesian area.

Okay. So it’s just all the – everything you need is basically to source the power for these new mines?

That’s correct.

Okay. Very helpful. Hey, great quarter. Thanks a lot, guys.

Thank you.

Thank you. Our next question is also a follow-up from the line of [Tom Spiro]. Please go ahead.

Pat, I was curious about that reference in your comments to the potential nuclear opportunities with some utilities. What’s going on there?

Well, as we have been tracking and following, and anybody reads in the paper, you know, nuclear is now green, and that’s renewable deal. I think, this country is definitely going to be starting to move more towards nuclear to supply the power capacity that we need. There are over 50 out for permitting right now. It looks like a lot of these are going to start to come out of permitting, and we are really hard investigating what all we have to do to be prepared to supply them with their electrical needs as they get ready to start building these nuclear power plants.

And then lastly, is the company going to increase its work force in this current quarter, as it has done in the last couple of quarters?

Yes.

Well. Thanks much, and good luck.

Thank you.

Thank you. There are no further questions. Please continue with any closing comments.

If there are no further questions, we appreciate you joining us today and look forward to talking to you again in the next quarter. Thank you again.

Thank you. Ladies and gentlemen, this concludes the Powell Industries second quarter Earnings Call. The conference will be available for replay after 12 noon today through May 14th at midnight Eastern Day Light time, and you can access the replay system at any time by dialing 303-590-3000, enter the access code 11113198. Numbers again 303-590-3000, enter the access code, 11113198. We thank you very much for your participation. You may disconnect. Have a very positive rest of your day.