Welcome to the Powell Industries earnings conference call. [Operator Instructions]. I'd like to turn the conference over to Ryan Coleman, Investor Relations. Thank you. You may begin.

Thank you, and good morning, everyone. Thank you for joining us for Powell Industries conference call today to review fiscal year 2023 second quarter results. With me on the call are Brett Cope, Powell's Chairman and CEO; and Mike Metcalf, Powell's CFO. There will be a replay of today's call and it will be available via webcast by going to the company's website, powellind.com, or a telephonic replay will be available until May 10. The information on how to access the replay was provided in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, May 3, 2023, and therefore, you are advised that any time-sensitive information may no longer be accurate at the time of replay listening or transcript reading. This conference call includes certain statements, including statements related to the company's expectations of its future operating results that may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties and that actual results may differ materially from those projected in these forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international, political and economic risks, availability and price of raw materials and execution of business strategies. For more information, please refer to the company's filings with the Securities and Exchange Commission. With that, I'll now turn the call over to Brett.

Thank you, Ryan. Good morning. Thank you for joining us today to review Powell's fiscal 2023 second quarter results. I will make a few comments and then turn the call over to Mike for more financial commentary before we take your questions. I'm very pleased to share that Powell delivered second quarter results that were among the best in our history as the continued execution against our strategic initiatives combined with the cyclical recovery of our core markets are driving improved margins and increased earnings along with achieving another record backlog. The momentum that started to build over the past few quarters in our industrial markets accelerated in the second quarter. Two significant awards underscored the strength of our bookings during the quarter, including an award for another large domestic LNG project, which marks 3 consecutive quarters of significant activity in this market sector. We were also fortunate to have received a new award for a greenfield petrochemical project during the quarter. This mega project is for a gas-to-chemical facility that will be located in the U.S. domestic market. While the strength of new orders was certainly driven by strong demand from our core oil and gas petrochemical end markets, the majority of the sectors and geographies that we compete remain very active. Notably, in addition to the commercial activity across our core industrial end markets, we also experienced continuing strength in booking activity across our utility and commercial and other industrial sectors during the quarter. Total revenue in the second quarter was $171 million, which is 34% higher than the second quarter of fiscal 2022 by market sector versus the same period in the prior year. Revenue in our oil and gas sector increased by 17%, petrochemical revenue increased by 37%, while the utility sector saw revenue jump 40%,…

Thank you, Brett, and good morning, everyone. In the second quarter of fiscal 2023, we reported net revenue of $171 million compared to $128 million or 34% higher versus the same period in the prior year. Commercial activity across our core industrial markets continues to be robust, recording new orders booked in the second fiscal quarter of 2023 of $508 million. During the quarter, we booked 2 large projects, that, when combined, totaled roughly $200 million of the reported current quarter orders: one petrochemical project and an LNG project. With the exception of the traction market, commercial activity is favorable across all of our reported market sectors on a year-over-year basis, however, was driven predominantly by the gas markets within the domestic industrial sector driving the total reported bookings for the second fiscal quarter to over a threefold increase or $357 million higher versus the same period 1 year ago. On a fiscal year-to-date basis, our book-to-bill ratio is 2.4x, resulting in continued backlog growth, reporting a record high backlog of just over $1 billion in the period, which was $581 million higher versus 1 year ago and $341 million higher sequentially. The current capital cycle and resulting demand for industrial electrical products and associated capital assets has resulted in extended lead times partially due to capacity and supply chain challenges for select electrical components compared to 12 to 18 months ago. And as a result, many of these large orders extend well into fiscal 2024 and in some cases fiscal 2025, such that we can ensure our ability to execute to our committed lead times. Compared to 1 year ago, domestic revenues were higher by 54% versus the prior year to $134 million, while international revenues were 9% lower compared to the prior year driven by lower project volume…

[Operator Instructions]. Our first question is from John Franzreb of Sidoti & Company.

Congratulations on an eye opening quarter. I'd like to start with the quarter in and of itself. Presumably, revenues and the margin profile of this business was locked in 6 to 9 months ago. So I'm curious if there was anything unusual in the quarter as far as revenue or cost equation or excess project closeouts that drove the stellar results in the March quarter?

Yes. John, this is Mike and I'll address that. First, if you look at the year-to-date margin, we're just under 18%, 17.7%. And it has a few drivers behind it. First, the -- we've been managing both cost and price here for the last 12 to 18 months. We're beginning to see that exit backlog. So we feel very confident we've got the inflation component under control via our pricing levers. Secondly, the mix of projects that are in backlog today. We've been very fortunate to build the backlog on the industrial side, which carries a little more -- it favors the margin a little more. And then third is, is all of the -- as Brett mentioned in his prepared comments, really all of our 7 facilities are pretty well balanced from a backlog perspective. And as that backlog converts to revenue, we will generate and are generating pretty good volume leverage across the system. So we anticipate the backlog will continue to support the similar level of profit.

And I guess this is a good problem to have, but do you have the capacity and the personnel to support $1 billion backlog? Or are you going to have to significantly increase your CapEx and your hiring practices to get to the end of the line here?

John, it's Brett. We absolutely have the capacity for this. We've been planning this for years in terms of the investments in the tools, processes and systems. More recently, not just as -- we've taken the order and worked with our customers and their engineering partners to lay out the schedules to be predictive and credible into what we could deliver, supporting the brand. But we've also identified -- we've had investments in land that we're going to convert in the second half. So you'll see an uptick in CapEx, I suspect, over Q3 and Q4, incremental, just to handle some of the laydown area for additional substations. And then we've identified some productivity increases. But we've been making those. If you go back 6, 7 years when we redid our entire systems, we've been methodic on keeping our machinery up to speed, up to date, attending to all the maintenance. We'll do some additive pieces here and there. But we definitely have the capacity to handle this, and we feel good that there's still room to go.

Okay. And Brett, it sounds like you're enthusiastic about the -- what you're still bidding on out there. Can you talk about the sustainability of the booking profile? I really don't expect $500 million in orders. But what kind of opportunity pipeline remains out there? And how long do you think it will last for?

I am optimistic, John. The -- if you look at the second quarter -- Mike gave some color around the 2 large orders, roughly $200 million of the total of $500 million. So certainly, timing broadened this -- really a significant performance in terms of the booking piece. But as we look forward, still pretty active. And as we've talked about in the gas market, there's a lot of things going on. There's still a lot of activity going on. And I think that certainly through the balance of this calendar year, possibly into next year if things still haven't shut off and -- we're right in the middle of that market that we know well.

The next question is from Jonathan Braatz of Kansas City Capital.

Sort of going back to the previous question. Order flows are good, business is strong. And does that put you into a better position to be more selective on the projects that you've been on? And that as we go down a couple of quarters out, that we may even see better margins because you can be more selective?

John, let me jump on this, and Mike can jump in. So one thing I'd make a comment, first of all, to your question is the nice thing about this cycle, especially on the gas side, is we're seeing all the projects in our core -- in our home markets of the U.S., Canada, the U.K. really nicely. I feel like from a share perspective, we're getting a chance to take a look at all of these and have chats with the customers and the engineering teams that are out there. So we aren't being selective in terms of bidding or not bidding, but we are able to go, "What's the right answer for everybody on these projects?" And from a timing standpoint, we're delivering it, the availability of what we do best versus what we'd have to buy out for the integration. So selective in terms of working very transparently with our end customer of how best can Powell participate in this cycle and deliver for their needs on the project.

Okay. Okay. And the -- I lost my train of thought. Mike, you mentioned that in the margin -- gross margin in the quarter that there was -- it sounds like there's some favorable closeouts. Was that significant at all in...

No. If you look quarter-over-quarter, John, it was about flat. Nothing unusual. The projects that we booked 12 to 18 months ago, they're exiting, they're closing out, nothing unusual in that whole process. So it was really -- as I said, we're starting to see some of the cost actions, pricing actions that we've diligently been working over the last year, 1.5 years, along with great project execution flowing through the system.

So does the -- looking ahead, does the gross margin look more reflective of the second quarter number versus the year-to-date? Because you did mention the year-to-date 17.7%. So going forward is more reflective of the second quarter number as opposed to the first half?

No, I would look at the first half number as kind of the litmus test and then layer in all of the initiatives that I laid out that will be accretive -- I think that will be accretive to the 17.7%. But as we have communicated in the past, we're really targeting and aspire to be in the high teens as we exit our fiscal year.

[Operator Instructions]. There are no questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Brett Cope for closing remarks.

Thank you, Kate. Our second quarter delivered solid performance with sequential improvements in both our top and bottom line and year-to-date through the first half of our 2023. Our employees have and continue to do a tremendous job. The resilience of Powell is on display through the first half of our fiscal 2023. I could not be more proud to be part of this incredible team. I would like to thank our valued customers and our supplier partners for their continued trust and support of Powell. The quality of our backlog combined with the strength of our balance sheet provides solid momentum as we head into the second half of our fiscal 2023. With that, thank you for your participation on today's call. We appreciate your continued interest in Powell and look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.