Karen Roan – IR, Easterly Investor Relations Mike Lucas - President and CEO Don Madison - EVP and CFO.

Jon Tanwanteng - CJS Securities John Franzreb - Sidoti Noelle Dilts - Stifel Jon Braatz - Kansas City Capital Ryan Thibodeaux - Goodwood Capital.

Greetings, and welcome to the Powell Industries' Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Karen Roan.

Thank you, Ms. Roan. You may now begin..

Thank you, Manny, and good morning everyone. We appreciate your joining us for Powell Industries' conference call today to review fiscal 2014 fourth quarter results. We would also like to welcome our Internet participants listening to the call simulcast live over the web. Before I turn over the call to management, I have the normal details to cover.

If you did not receive an e-mail of the news release issued yesterday afternoon, and would like one, please call our offices and we will get one to you. That number is 713-529-6600. Also if you want to be on the permanent e-mail distribution list for Powell news releases, please relay that information to us.

There will be a replay of today's call, and it will be available by webcast by going to the company's Web site at powellind.com or a recorded replay will be available until December 10, 2014, and information on how to access the replay was provided in yesterday's earnings release.

Please note that information reported on this call speaks only as of today, December 3, 2014, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening or transcript reading.

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 Mike Lucas, President and Chief Executive Officer; and Don Madison, Executive Vice President and Chief Financial Officer. I will now turn over the call to Mike..

Thank you, Karen. Good morning, everyone. Thank you for joining us today for a review of our fiscal 2014 fourth quarter and full year results. I will make a few opening comments and then I will turn the call over to Don to discuss the financial details.

As you may recall, at the time of our operations update call in late September we had our July and August results. Subsequently, our fourth quarter results came in better than we anticipated primarily due to strong service revenues and better than expected cost on certain large projects in September.

Also, our fourth quarter orders were strong, totaling just under $200 million and resulting in record orders for the full year of $726 million from continuing operations. I would like to provide you an update on the two operational topics we discussed on our September conference call.

First, regarding our business systems reimplementation, and efforts to improve some inefficiencies we encountered, those results came in as expected for September and we continue to see positive progress moving forward into this first quarter.

As a reminder, earlier this year we made a strategic investment into our business systems and a suite of new software tools designed to standardize best practices, drive efficiencies, and increase productivity across the company, as well as provide us with processes and tools to help scale for future growth.

As new project work began to flow through the new system, we encountered some process issues that caused operational inefficiencies, with the greatest impact seen in our largest manufacturing facilities. We've been aggressive in our recovery actions that are now meeting revised schedules and revenue plans.

We still expect to have these issues mostly resolved within the next few weeks. Secondly, our Canadian business also delivered results in line with our outlook as discussed in the September call. We continue to work closely with our customers to meet and hold delivery schedules.

We are continuing to deploy internal resources to leverage the knowledge of our most experienced employees, utilizing them for in-process training at our Canadian facility. We continue to meet the revised production schedules that we established in the third quarter, although the cost of doing so continues to impact our results.

We anticipate steady progress over the next couple of quarters, but we will continue to see higher cost to hold our customer commitments and schedules. The demand for products and services in Canada has been strong, and our investment in facilities has been well received and is unmatched by our competition.

With the construction of our new Canadian facility, a little more than a year ago, our objective was to replicate our U.S. project integration model and have the full capability to design, advocate, integrate, and test complete E-houses in Canada, where previously we only had a final assembly operation.

We continue to see strong demand for our solutions in this market. In light of this demand as well as a positive future market outlook, we are investing an additional $33 million to expand our manufacturing capacity in Canada.

Our Canadian manufacturing operation is strategic to our ability to serve our customers, and we continue to believe that the oil and gas activity in Canada will be an important long-term growth market. This investment only further solidifies our long-term commitment to the region.

Regarding our core energy markets, we continue to monitor and make ongoing adjustments to our outlook. In the oil and gas segment, there is obvious concern about the recent decline in oil prices and its impact on pending project awards.

At this point, we anticipate that new orders in the energy segment will be a little tougher in fiscal 2015 if depressed oil prices persist, as our customer's cash flows and capital spending plans may be reduced or delayed.

Given our healthy beginning backlog and the fact that many of our active projects are already well underway, we anticipate that any potential delays in capital spending will have a greater impact on our fiscal 2016 revenues than on the current fiscal year.

In the offshore production market, we're seeing some large projects being pushed into subsequent quarters. At this point, we anticipate some smaller offshore projects booked this fiscal year, but we do not expect any major offshore project rewards until fiscal 2016. Regarding the U.S.

petrochemical business, we had another very strong bookings quarter this past quarter. For fiscal 2014, we won almost $200 million in new petrochemical awards. We anticipated additional opportunities in this segment through the middle of calendar 2015.

However, we believe we passed the high point of the electrical equipment awards for the first cycle of investment in petrochemicals. There has been some talk about a second wave of investments, but these projects have not yet been fully sanctioned.

We continue to see strong and active pipeline markets, and expect more of these projects will move from the preliminary engineering phase into award during 2015, both in the U.S. and in Canada. Pipeline represents a significant volume opportunity, and we maintain a strong outlook for this market.

Even with the lower price of oil, we expect this segment to remain healthy. With the price in natural gas in the U.S., LNG export facilities continue to represent a substantial opportunity. We see the LNG export market still in its early phase with numerous projects in North America in various stages of permitting and engineering design.

We continue to believe the LNG export market represents a significant opportunity, and we remain optimistic about the long-term potential of this market. I'll now turn the call over to Don to review the financial details..

Thank you, Mike. Revenues from continuing operations were $163 million in the fourth quarter of fiscal '14 compared to $176 million in the fourth quarter last year. Gross profit was $26 million or 15.8% of revenue in the fourth quarter compared to $40 million or 22.7% of revenue in the fourth quarter of fiscal '13.

In the fourth quarter fiscal '14, both revenues and gross profit were negatively impacted by inefficiency curve following the reimplementation of our business systems, and as we increased production volume in Canada.

Additionally, in fiscal '13, both revenues and gross profits were favorably impacted by the recovery of $3.8 million related to cost overruns on our large industrial project.

Selling, general and administrative expenses increased by $2 million to $21 million compared to the fourth quarter a year ago, primarily due to higher personnel cost and depreciation expense.

Income from continuing operations in the fourth quarter fiscal '14 was $2.4 million or $0.20 cents per share compared to 17.3 million or $1.44 per share in the fourth quarter of fiscal '13, including special items. Excluding special items, income from continuing operations in the fourth quarter fiscal '13 was $9.1 million or $0.75 per share.

A reconciliation of this non-GAAP financial measure was included in yesterday's press release. Revenues increased by $7 million to $648 million for the 12 months ended September 30, 2014. Domestic revenues decreased by 2% or $9 million to $365 million, and international revenues increased by 6% or $16 [ph] million to $283 million.

The growth in our Canadian business contributed to the increase in revenues compared to last year. Revenues from industrial customers increased $19 million to $474 million. Our revenues from utilities decreased $12 million to $127 million. Revenues from transit projects were $46 million unchanged from a year ago.

Gross profit decreased by 9% or $13 million to $125 million in fiscal '14. Gross profit as a percentage of revenues decreased to 19.4% compared to 21.6% in fiscal '13.

The decrease in gross profit was primarily due to higher costs to hold customer schedules, inefficiencies, and a production ramp in Canada, and process inefficiencies following the reimplementation of our business systems. However these higher costs were partially offset by supply change and productivity initiatives.

Additionally, gross revenue and gross profit in fiscal '13 were favorably impacted by $3.8 million project claim recovery as noted earlier. Selling and general administrative expenses increased to $88 million in fiscal '14, primarily due to increase in personnel cost and administrative expenses.

SG&A expenses as percentage of revenues increased to 13.5% in fiscal '14 compared to 12.4% last year.

This increase was partially offset by decrease in depreciation expense, as our existing business systems became fully depreciated in fiscal '13, and the favorable impact of the capitalization of certain personnel costs associated with the development and reimplementation of our new business system.

However, going forward, the favorable impact of depreciation expense and capitalization of personnel will no longer be realized. Research and development expenses were $7.6 million unchanged from a year ago.

Amortization of intangible assets decreased to $779,000 in fiscal '14 compared to $1.7 million in fiscal '13, primarily due to an amended supply agreement. Additionally, we recorded other income of $1.5 million in fiscal '14 which represents the amortization of a deferred gain from the same amended supply agreement.

Our effective tax rate in fiscal '14 was 36.1%, which approximates the combined U.S. federal and state statutory rates, as a majority of our income was attributable to U.S. Additionally, our federal research and development tax credit expires on December 31, 2013.

For the 12 months ended September 30, 2014, income from continuing operations was $19.6 million or $1.62 per share. We generated new orders in the fourth quarter of $199 million, resulting in a year end backlog of $507 million, compared to a backlog of $477 million at the end of the third quarter, and $438 million a year ago.

For the 12 months ended September 30, 2014, cash provided by operating activities was $9 million, and investments in property, plant, and equipment totaled approximately $16 million. At September 30, 2014, we had cash of $103 million compared to $107 million at September 30, 2013. Long-term debt and capital lease obligations totaled $3 million.

Looking ahead, based on our backlog and current business conditions, we expect full year fiscal '15 revenues to range between $650 million and $710 million, and full year earnings to range between a $1.75 and $2.30 per share. At this point, Mike and I'll be happy to answer your questions..

Thank you. We would now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Jon Tanwanteng of CJS Securities. Please go ahead..

Good morning, guys. Happy Thanksgiving, and nice job in the quarter..

Thanks, Jon, good morning..

I had a couple of questions regarding your outlook and where energy prices are.

First of all, how much have you factored in your guidance for '15, specifically as a result of customers pushing out or reducing capital budgets? And maybe second, do you view lower oil prices more of a fiscal '16 issue given that the backlog and long lead times?.

Thank you for asking question. First, I'd say that yes, coming into the year with a pretty healthy backlog and pretty strong fourth quarter bookings number that sets us up pretty nicely going into '15.

At this point, if we believe that those oil prices I think as everyone has been talking about, they persist at those lower levels, there are certainly some risk projects could be delayed or pushed out. At this point we've seen no impact of that yet on any projects that are underway or being pursued.

And if there are delays, we anticipate it to be more of a second half bookings issue and a '16 revenue issue. I know some people have expressed concern there is a risk of cancellation, and we think that's very low risk in our backlog.

By the time the electrical portion of many of these projects are issued they're already significantly underway with the process side of that investment. We rarely see cancellation. So I think the risk of cancellation and things that are in the backlog is very, very low..

Okay, got it.

And then just in terms of the fiscal '15 guidance, there is not much in there?.

When you're looking at the fiscal '15 guidance, clearly we have taken a more conservative look than we might have taken three or four months ago. The near-term risk is really more related to the small projects and any fill in work that we would need to fill out the balance of our backlog requirements for revenue in the current year.

Again, this will be more of a second half risk than a first half risk, and we have taken a little bit more conservative view as a result of recent activities in oil and gas price..

Okay, great.

And then, could you talk about geographically how you expect the trends to play out just because of the different cost production in different regions?.

We still see most of it, while most of our volume as in '14 and we expect in '15 it's still going to be North American based. So, we don't see much change in that year-over-year. It'll be our U.S. based customers and Western Canada..

When you're looking at, Jon, follow-up on that; the risk from project standpoint were probably much near or more greater from a risk standpoint on production-related capital spending projects, which are looking at increasing capacity. Those projects will probably come under more scrutiny, and risk of delays are probably more prevalent there.

That would impact Canada, probably more so than and the U.S. from our recent activity. But again, Canada is heavily influenced on pipelines. So we still see strong opportunities and at least in the near-term in the Canadian market as well..

Okay, thanks.

And then just real quick, did you pull any business from the December quarter at all, especially in services?.

No. The services piece was a lot of aftermarket parts that we got caught up on in the factory as a result of some of the inefficiencies we had. So that was all in backlog at the time. I'd say there was no pull in from Q1 into Q4..

Okay, great. I'll jump back in the queue, thanks..

Thank you. The next question is from John Franzreb with Sidoti. Please go ahead..

Good morning, guys..

Good morning, John..

Good morning, John..

I'd like to talk about the $33 million expansion in Canada.

Could you just give us a little bit more color what you're doing, the timeline for doing it, and maybe why you're not concerned that you might be adding capacity as we are peaking out in the region?.

Yes, good question. First of all, what is it; it's an expansion of the manufacturing footprint primarily. More space on the factory floor, there is a little bit more of office going in with that because we've basically filled up the office space now.

When we put together our projections for the original building, I think we've mentioned in some earlier calls, we're probably running 18 to 24 months ahead of our original justification for the construction of the original building, and we're just running out of some floor space right now. We do need some of that space to deliver '15 commitments.

However, this was not a '15 investment. This is a longer term investment. Even if there is some short-term blips here, we still think the Canadian marketplace has a lot of runway left in it and this was an investment for the long-term.

So we hope to have that facility to be able to fully occupy that by late second quarter or early third quarter, fiscal quarter..

Okay. And Mike, you've mentioned that you were thinking of adding a 25 to 50 people in Canada as far as staffing wise I think was by the end of the year, might have been by the first quarter.

Is that still a good number or are you going to have to add more on top of that number?.

Now, that's a pretty good number. In fact, I would say today we are probably nearing peak employment. We're essentially through that accelerated ramp up hiring when we were meeting people in every functional area. We're essentially through that. I'd say we're a little bit more stabilizing now on the employment, the hiring.

Of course there will always be a few adjustments given volume and demand and shift structure, both on the professional and the skilled labor side. But essentially we are nearing peak employment in Canada, and the expansion we don't think is going to require that many more people. It's mainly a floor space issue, if anything.

A lot of these E-houses, we're building up there turned out to be a lot bigger footprints than we anticipated.

So it's as much of a floor space issue as anything, but one more reminder, I think when we ramped initially with the new building, we put a lot of new processes in that facility; things we had not done up there before, structural steel design, fabrication of the base, and a paint line and a bus bar production and a coding area.

So those processes are now all very well established. So this is mostly a space expansion need..

Okay. And one last question, maybe this to Don; in the fourth quarter results, how much was the results impacted by the IT upgrade rollout, maybe you want to call it a business system upgrade.

Can you quantify that for us?.

Well, relative to the rate that we have been experiencing, say, in the previous quarter, it came in pretty much as we anticipated. There wasn't a lot of surprises from our September call, the deterioration for the quarter.

Probably, pretty close to our estimate of 2/3rds was a result of the Canadian operation, about a third of it was related to the systems, and those numbers that we had anticipated came in pretty close to where we thought with the couple of exceptions as Mike noted regarding the service, and improvements on a couple of projects from a cost perspective that were better than anticipated.

But the inefficiency and the extra cost came in very close to what we thought it would be..

Okay. Thank you, guys. I'd go back into queue..

Thank you. The next question is from Noelle Dilts of Stifel. Please go ahead..

Thanks, good morning..

Good morning, Noelle..

Just to expand upon that last question, as we look out into the first quarter and the reminder of 2015, how should we think about the Canadian business systems drag trending through the year; I understand -- hopefully you'll be through this business systems drag here in the next couple of weeks, but maybe can you talk about if you expect maybe the drag be half of what it was in the fourth quarter than the first, any direction there would be helpful..

So we'll them in two pieces. First, the business system piece; your comments are correct, Noelle. We think we'll have that essentially behind us in the next few weeks. We've seen good steady progress in getting the output levels back up. I'm going to call it the, "Pre-goal live levels," we saw earlier.

So I think we'll essentially have that mostly behind us in the next few weeks. Canada -- so the projects we were working on, we had to throw some extra cost at those in a way of outsourced cost and extra labor and over time and expediting fees. So those are now built into our margin expectations in those projects.

Until that current backlog of projects is flushed out, it will continue to be a margin drag, and the bulk of those will be shipped by mid to end of second fiscal quarter.

So you will see it continue to be a drag through the first quarter, less so in the second quarter, and then once we get that, the predominant portion of that backlog behind us, third and fourth quarter ought to be much stronger.

Don, would you add anything to that?.

No, I agree with the comment that Mike has made. To put things in perspective, keep in mind that we're on percentage completion from our accounting perspective. So we've had to take down the expected margins on these jobs, which we'll be recognizing with the life of the project.

From an extra cost incurred cash flow perspective, most of that will substantially ramp down here at the end of this month and the early part of January..

Okay.

And then have you seen any order cancellations associated with -- on some of these production deadlines being pushed out? I'm sorry, delivery deadlines being pushed out? I know on your update call you said you hadn't seen too much of that, but just curious still nothing there?.

Noelle, was your question on cancellation ….

In Canada..

No. We've seen no project cancellations. Once they're in backlog, we've seen no cancellations in Canada or really anywhere else in any of other markets. Once the project reaches that point, the odds of it continuing are very high. They're pretty substantially far into their investment, so no cancellations anywhere..

Okay.

And when we look at this Canadian plant expansion, and the 33 million expansion, how can we think about the total productive capacity of that facility after this is completed?.

Well, I think the best way to characterize that, keep in mind what we've talked about, we're in their facility here in Houston. That we built it with a three to five-year view and did not fully equipped the machinery equipment, a lot of things that we will need to add over time as the volume in the business plans.

We're doing the same thing with this expansion in Canada. We need some floor space today immediately. We've already had to move some of our inventory off site because we just did not have sufficient space to manage all the volume going through the existing footprint.

Our goal is to -- we're working with the builder to try to get some of that space available to sooner as been the facility as a total. We're hoping to get some of that space completed and useable here early in our January time period. But when you're looking at the business as a whole, we're basically nearly doubling the manufacturing footprint.

So theoretically, we're doubling the capacity long-term, but to reach those capacity levels, there has to be incremental people or incremental machinery equipment. That's not in the current scope of our planning..

Okay, thanks. I'll hop back in the queue..

Thank you. The next question is from Jon Braatz of Kansas City Capital. Please go ahead..

Good morning, everyone.

With respect to maybe some projects cancellation or even slowing orders, I guess my question is are you currently seeing any pricing issues and are you seeing any companies trying to fill their order book by taking some discounts? And I guess secondly, if indeed it comes to a -- be a second half issue, would you expect to see margins little bit lower on new orders in the second half?.

At this point, Jon, we see no change in the pricing outlet, nor in our pricing strategies. So pricing has been holding so far. I think the second half it's a little hard to call right now what the margins might look like based on potential market softening at that point. It's a little bit hard to call.

We're going to be competitive on these projects as we always have. We're going to try to win the ones we want to win. But right now pricing has been holding so far both in the Canada and the U.S..

Okay. Thank you very much..

Thank you. [Operator Instructions] The next question is from Ryan Thibodeaux of Goodwood Capital. Please go ahead..

Good morning.

Just trying to reconcile the revenue guidance with the current level of backlog, are you implying that you're going to have to say more delayed billings level or are you implying that you think order gross is going to tick down sequentially over the next several quarters?.

Repeat your question. I'm sorry. I lost my train of thought..

I'm just trying to reconcile with the revenue guidance versus the current backlog, and if I look at projected new orders over the next several quarters and then what shipping out of your backlog and the revenue, I'm just trying to arrive at the number that you're guiding to and it's more difficult..

When you're looking at the current backlog, there is backlog coverage of about high 60% of our revenue guidance. But again, that to keep in mind is just an analytical number. When we're about taking a look at it, we also have to look at the time of that.

We do have some revenues in the backlog, we do have some backlog that will be -- we will not generate revenues into future years. We do have some project backlog that goes out over in 12-month time as of the end of the fiscal year. So we're going to 16..

Okay. That would imply that the trend we're seeing over the last several quarters where any quarterly revenue have a percentage of your product quarter backlog is trimming down, which means your backlogs are little more extended than it has been in previous ….

It has been, so keep in mind that we've got behind as a result of the issues we talked about. So we had a temporary spike in our backlog.

I'd say we're now returning more to a normal level between by the end of the first quarter we'd probably substantially be back to more a normal trend where they show between backlog and revenues, the real issue that we need in the near-term meaning the next six to nine months is going to be smaller projects to fill in gaps and in the business they have shorter cycle.

We tend to talk about the main part of our business which have the cycle of plus or minus a year, but we do have product lines and businesses that have projects that are more in the six to nine months cycle. Then you got to your booking bill which is predominantly our service. Our service -- and that we do here and in the U.S.

-- excuse me, in the Canada that have not too close to 20% of our total revenue, and that business typically runs on the backlog of three months or less..

Okay, great. Thank you.

And then also on the margin side, do you think that if once the Canadian ramp up issues are behind you and the internal systems issues are behind you, do you expect to get back to your normalized gross margin level by the back half of the fiscal year?.

Yes, we are looking -- I mean the first half will continue to be addressed. The second half which expect to see noticeable improvement even for the full year at this point of time, we're still targeting year-over-year improvements in our in our gross margin, and we're targeting to get back if not too close to what we performed in fiscal '13..

Okay, great. My last question, you mentioned the first wave of petrochem orders, you think these that we peaked on the first wave? Can you talk a little bit more about when those projects begin and when you receive the orders and when you will fill them? And then same on the thinking on the second and third waves.

What are your expectations all around this?.

Yes. The overall activity we've seen probably started probably 18 to 24 months ago, with orders coming in, and they have been very strong through all of 14. We think there are still some activities there through mid-15 but we'll probably begin to taper down based on the projects we see. They have been sanctioned. They're actively being engineered.

There are -- you can certainly read 20 in the press about the billions of dollars of additional petrochem expand that is queued up but today we see that still little longer term with many of those projects on sanctioned or not entered into engineering basis yet.

So I guess I'd summarize that it's been very healthy to 14; some good activity maybe mid calendar '15 starting to take the role up, and if there is the second wave it's more likely a '16 bookings wave..

Okay, so how long after the project get start would you get the bookings for the orders and when would you deliver those in terms of the 18 months ahead of time when you get the order, or is it nine months ahead of time?.

Typically I believe them both of these projects again depends on the size of the projects. We have some smaller ones and small -- look at it. They deliver roughly year after we will book the order relative to when did the project get actually start and that's a very subjective call.

I think some of these are being in the engineering firms from a budgetary analysis stage for two or three years. So we watch them that percolate in the engineering firms and they never come out, and we watch others; they come in and come out very quickly.

So it's hard to really say that when an order starts it because it tend to stay in an engineering firm to different length of time depending on the time from the client.

But I'd say based on the activity we see today, I don't think it's anything that is an engineering firms that we would expect to come out to be bid and order placement before well into '16..

Maybe one other piece, Ryan that would help you there a little bit I'd say once our equipment ships and gets to the petrochemical site location depending on the scope of that job, it could be six to eighteen months to pull it that site location than is up and running.

So we're trying to rationalize that with information you're gathering from the market place, even after we're done that site location still could have another six to eighteen months of work to do..

Right. Okay, I understood. Thank you very much..

Thank you. The next question is a follow-up from the Noelle Dilts of Stifel. Please go ahead..

Hi, again, thanks. My first question is just quickly on the orders in the quarter; can you talk about maybe how big some of the larger orders were? I'm assuming that was probably from petrochemical work that you booked..

Yes, there was one significant project and there was petrochemical that was in the $35 million range. I'd say of it 200 million roughly about 70 million was petrochemical, 35 of that was one big project, the rest were of nice sized $5 to $10 million projects.

Other than that there were no other large projects in the quarter except the 135 million, nice ones in the 5 to 10 million range, but no other mega projects..

Okay. And then, I'm just going back to how you guys are thinking about the exposure to lower oil prices.

You talked about some of the upstream work obviously being more risk, I guess are there any -- when you look at your business are there some markets that you look at as a little bit more insulated, how are you just evaluating on that exposure?.

Good question.

We iterated a couple of things, Don already said, certainly anything that's production-related we don't think much on the exploration side as you know, but on the production side, both onshore and offshore we think those probably have a higher risk to the movement in oil prices in any large, large mega projects when you're in the billions of dollars of capital stand, we would anticipate those to drag out a little bit.

The ones we think might be a little less acceptable would be at least in short-term is pipelines, we're still pretty bullish on the pipeline outlook for the next few months. What's left in the tail of petrochemical because it tends to be more driven at least the projects we're perusing are more driven by the price of gas than the price of oil..

As far as LNG..

Yes. LNG of course it's more gas price-driven in a level as well. So we see those are little less acceptable to the price of oil pipeline, petrochemical LNG less acceptable, production both onshore and offshore in large mega projects more susceptible, more risk..

Okay, thank you..

Thank you. [Operator Instructions] The next question is a follow-up from John Franzreb of Sidoti. Please go ahead..

You mentioned that a shorter cycle business is going to be a point that you mentioned to their earnings profile going forward.

I just wonder if you could recap what the main profile was in this sort of cycle business in fiscal 2014, and what would be the key drivers both positive and negative for that business in fiscal 2015?.

Tough question [indiscernible] we got think on a little bit. The mega projects we always lay those, the bigger projects we always lay those in the schedule first.

They were always trying to pursue some smaller fill in business trying to wrap around that, and in the mid of a scheduling challenge to keep the opportunity pipeline full and manage that with the production schedule. With the booking bill we still need labor in the year. We still have some need for the small bill in businesses.

But those tend to be the one that get impacted by short-term things going on in the market place. I'm not quite sure how to characterize it, other than that's probably going to be a little bit more volatile in 15, will get more variability in those short-term quick cycle projects than we've seen in the past..

But John, you can also go back just the backlog coverage. While you do have some work in both years they goes out over the beyond the twelve months' time period, and the backlog covers is coming down a little bit. It's not materially different than what it is in the last couple of years.

Half of that increment in business is going to be short cycle either maintenance service or small projects that would be more appear towards maintenance spending. There is obviously some capital spending that goes in the year as well. It's not a huge risk. It's really more of a timing risk..

Okay, and Don, I want to make sure if I heard you correctly.

Did you answer to one of the questions previously that you expect to be gross margin in the second half of fiscal 2015 to be similar to what you encourage in fiscal 2013?.

We're definitely looking at the second half of the year to be more in line with '13, and we still haven't given up on getting back to the full year being close to what we have in '13..

Okay. Thank you very much guys. .

Thank you. We have no further questions in the queue at this time. I'd like to turn the call back over to management for any closing remarks..

Well, we appreciate you joining us this morning. I just like to hit some of the highlights; I think are important to walk away from here. We think our operational actions both in the U.S.

and Canada are starting to show solid results that our focus is going to be remaining on meeting customer commitments, even while doing incurring some additional costs in the short-time. We enter 2015 a bit more cautious due to the recent decline in oil prices. We opened the year with a very healthy backlog after record level bookings in 2014.

Our core energy market still provide a long strong long-term outlook in the investments we made over the past couple of years in our production facilities and our business systems are critical in setting this up for long-term future drilling.

These additional investment we're making that are underway in Canada, they're only going to strengthen our position in that important market. Given the market conditions, we believe we're very well positioned going into what could be bumpy '15.

I just wanted to thank you again for your continued interested in Powell, and we look forward to talking to you next quarter. Thank you, bye-bye..

All the analysts dropped off..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. And thank you for your participation..