Stephanie Zhadkevich - Investor Relations, Assistant Vice President at Dennard-Lascar Associates, LLC Tom Powell - Chairman of the Board, President, Chief Executive Officer Don Madison - Chief Financial Officer, Executive Vice President, Chief Administrative Officer.

John Tanwanteng - CJS John Franzreb - Sidoti & Company Brent Thielman - D.A. Davidson Tom Spiro - Spiro Capital.

Greetings and welcome to the Powell Industries first quarter 2016 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.

It is now my pleasure to introduce your host, Stephanie Zhadkevich. Please go ahead..

Thank you Kevin and good morning everyone. We appreciate you joining us for Powell Industries' conference call today to review fiscal year 2016 first quarter results. We would also like to welcome our Internet participants listening to the call simulcast live over the web. Before I turn the call over to management, I have the normal details to cover.

If you did not receive an email of the news release issued yesterday afternoon and would like one, please call our office and we will get one to you. That number is 713-529-6600. Also, if you would like to be on the permanent email 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 via webcast by going to the company's website at powellind.com or a recorded replay will be available until February 10, 2016 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, February 3, 2016 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 Tom Powell, Chairman, President and Chief Executive Officer and Don Madison, Chief Financial Officer. I will now turn the call over to Tom..

Thank you Stephanie and good morning everyone. Thank you for joining us today for a review of our fiscal 2016 first quarter results. Been a while since I have done one of these conference calls, so bear with me.

I am going to make a few opening comments and then I will turn the call over to Don Madison for financial details before we take any of your questions. Our performance over the last several years as a company has not been up to par. We have disappointed some customers with delays.

We have disappointed the investment community and we decided it's time for a new beginning. As such, I have stepped back into the role of CEO. The Board is actively working to name a new CEO and we are evaluating both internal and external possibilities. The timeframe is not predictable as you might expect.

While much of the work required to integrate our business system throughout the company has been done, there is still some work to be done, but we have made good progress.

This set of process of management tools require a greater cooperation and communication between the various groups within the organization if we are see all of the benefits they offer. Canada and the challenges they encountered are improving and in the first quarter they were on target with our expectations for fiscal 2016.

We are pleased with their improved performance. As you are already aware, the oil and gas marketplace has continued to show signs of a slowdown in the global economy. Orders during the quarter were in line with previous quarter and reflect the impact of lower oil and gas capital spending.

Related inquiries are down and projects are smaller in size and scope and prices are more competitive. 2016 will be a challenging year for everyone involved in the energy markets. But we certainly are going to tackle and we are going to be successful.

Our company wide focus in the coming quarters will be to work hard upon efficiencies and productivity while operating in this much more competitive environment. We have many customer commitments to meet during the year and we intend to meet them. Throughout our history, we have participated in markets that are cyclical.

We have handled market downturns many times, weathered them well and we believe this time will be no different. Our focus is to support our customers and the system with their needs, build on past and new customer relationships and be prepared to bring our expertise to project opportunities when and where they are needed.

Growth in oil and gas capital spending will return and when it does, Powell is in a solid position to perform. We have modern facilities and equipment and the most talented and motivated employees in the business. I am proud of this group. I will now turn the call over to Don Madison to discuss the financial details..

Thank you, Tom. Revenues decreased by 2% or $3 million to $150 million in the first quarter of fiscal 2016 compared to the first quarter of fiscal 2015. Compared to first quarter of fiscal 2015, domestic revenues increased by $9 million to $105 million and international revenues decreased $11 million to $45 million.

Revenue from utilities increased by $4 million to $29 million. Revenues from municipal transit projects increased by $3 million to$9 million. And revenues from industrial markets decreased by $10 million, [indiscernible] at $113 million. Gross profit in the first quarter of fiscal 2016 increased by $2 million to $23 million.

Gross profit as a percentage of revenues increased to 15% compared to 14% in the first quarter of fiscal 2015. As Tom discussed, we are benefiting from operational improvement in our Canadian operations. And these improvements were partially offset by unfavorable project costs on a large transit project.

Selling, general and administrative expenses as a percentage of revenues decreased to 13% in the first quarter of fiscal 2016 compared to 14% during the first quarter of fiscal 2015, as we have begun to align our spending in response to current market conditions.

In the first quarter of fiscal 2016, we incurred $3.8 million in restructuring and separation costs associated with the departure of our former CEO. We recorded a benefit for income taxes of $1 million in the first quarter of fiscal 2016 as well as the first quarter of fiscal 2015.

For first quarter of fiscal 2016, we reported loss of $459,000 or $0.04 per share compared a loss of $239,000 or $0.02 per share in the first quarter of fiscal 2015. Excluding restructuring and separation costs, net income for the first quarter of fiscal 2016 was $2 million or $0.18 per share.

New orders placed during the first quarter were $102 million, resulting in a backlog of $391 million compared to a backlog of $441 million at the end of the previous quarter and $506 million a year ago.

For the three months ended December 31, 2015, cash provided from operating activities was $24 million and investments in property, plant and equipment totaled $1 million. At the end of the quarter, we had cash of $59 million compared to $44 million at September 30, 2015 and long-term debt, including current maturities was $2.4 million.

In December 14, our Board of Directors authorized a share repurchase program which allowed us to repurchase up to $25 million of our outstanding stock. As of the program's exploration this past December we have repurchased 806,000 shares at an aggregate cost of $25 million. Looking ahead, our first quarter results were disappointing.

We continue to expect full year fiscal 2016 revenues to range between $520 million and $560 million. And we expect full-year earnings to range between $0.65 and $1.05 per share. Our earnings outlook for fiscal 2016 excludes restructuring and separation costs the company will incur during the year.

At this point, Tom and I will be happy to answer your questions..

[Operator Instructions]. Our first question today is coming from John Tanwanteng from CJS. Please proceed with your question..

Good morning. Thank you for taking my questions..

Hi John..

How are you doing? Just given that you think the quarter was disappointing, what gives you the confidence in the outlook for the rest of the year? And does that include any restructuring or cost savings initiatives in there?.

Well, clearly the first quarter was burdened a little bit by project cost overruns on the transit projects that wasn't anticipated and that we had our service revenues in the December, particularly, was a little shorter than what we expected.

But when you are looking at the outlook for the balance of the year, particularly in the next couple quarters, the backlog is filling in and we are pretty confident on the short-term production requirements. We have seen and are continuing to see operational improvements from efficiency standpoint. They were somewhat masked in the first quarter.

We think those will start rubbing through in the coming quarters and that the overall outlook is still in line with the guidance that we have provided at the beginning of the year. So we did have a couple of bumps that held us back a little bit in the first quarter, but overall things within the business are shaping up fairly nicely.

The biggest challenge we had is the market conditions and making sure that we can fill in the backlog in the last few months of the year..

Okay. Great.

And can you talk about the landscape and the pipeline heading into the backend of the year and maybe a couple months beyond that? What does that mean for fiscal 2017 revenues and earnings?.

Well, it's still to early to call for 2017, but clearly the pipeline is getting tougher, competition is getting stronger. In general, I would say the projects, while there are still several projects out there, there are a lot of project out there, they tend to be smaller nature.

So when you look at them in aggregate dollar volume, it's harder to reach the numbers that we had in the past. But overall there is still a couple of sizable projects that we expect to close in the current fiscal year and we think that we are in a competitive position for those.

But by and large we are seeing more small projects than large projects when you are looking at the next couple or three quarters..

Great. Thank you. I will jump back in queue..

Thank you. Your next question is coming from John Franzreb from Sidoti & Company. Please proceed with your question..

Good morning everyone. Welcome back, Tom..

Hello John..

So I just wanted to go back to the inefficiency problems that you had in the quarter and how much that impacted the gross margin.

Can you quantify that for us, Don?.

The quantification of it, again it is difficult on how you draw the line on the issues, but there is couple or three projects that we did concur some late cost and in total, I would say the pretax impact was in excess of $1 million, partially due to some rework that occurred late in a project, on a transit project and then we had, with some of these large projects that we have been building in the last, this past summer, they are beginning to ship.

Some of these that we have been responsible for freight to site and we were a little bit short on a couple of those relative to what we had anticipated in our planning. So that gives a little bit of pressure.

I can say the third item which was more of a December issue that a quarter issue was that service in December came in a little bit lower than we anticipated, which would have benefited us in the quarter. Though when we are looking at the balance of the year, we are still expecting that to be in line with the full your expectations..

Okay. Got it.

And given the weakness in the main oil and gas markets, can you talk a little bit about your ability to diversify maybe some of the markets that you exited a few years back, the competitive landscape there, the ability to hit some of those more traditional industrial or power generation type markets?.

First off, I would say we hadn't exited any markets. I would say that clearly we have been much more dominant in the oil and gas because of the size of the market in the last couple of years.

But when you are looking at the non-oil and gas markets, the activity that we are seeing, clearly we are participating and actually seeing, I would say, marginal improvement in market opportunity in utilities. Particularly in the distribution side we have had some success there last year. Our fiscal 2015 exceeded 2014.

At this point in time, I would say that trend is likely to continue that we think that will see good opportunities through fiscal 2016. We have talked about in the past. We have spent time and effort growing our relationships with utilities in Canada with the long-term goal of making that a secondary market for Powell. We are having success there.

We have booked some business late last year and we are looking at the opportunities in front of us for fiscal 2016. We think we will have more success. Looking at the oil and gas, the oil and gas has not gone away. We are still booking business in petrochem. We are still doing a lot of bidding activity, are more budgetary and pipeline.

There is a lot of activity out there but the question is, which and how many of these projects will actually be funded in the near-term.

But there is still, I would say, looking at number of quotes in the market sector that is still probably one of the strongest sectors that we are seeing from a budgetary perspective for a quote, but again most of them are budgetary. International, oil and gas is still stronger than I would say this year.

We are seeing it particularly in the Middle East. We have booked some business. And we are also booking some business in the Middle East in the generation area. So we are not fully dependent upon U.S. oil and gas. But clearly that is where the market is the softest..

Okay. And it's good news, revenues on quotes are zero. Okay. Thanks for the color, Don..

Thank you. Our next question today is coming from Brent Thielman from D.A. Davidson. Please proceed with your question..

Hi. Good morning..

Good morning Brent..

Really just one question from me here remaining. Tom, you have been through a number of cycles in this industry.

Would really just be curious to get your thoughts on what you think looks different in this down cycle, if anything? And also what do you think might be different about Powell in this down cycle versus the past?.

There is not a lot of different issues. It is more issues and more people to deal with. This came on rather quickly. In fact this downturn, as a matter of fact, we quite start on a more timely basis. We had some difficulty in the implementation of Oracle systems and that cost us to backup and not get mixed up deliveries.

So we have spent a lot of time all over time with contract labor and so forth. But we are getting back to size that we can manage and prepare for the future more adequately. It's a lot of the same people we got at Powell. We certainly got the energy to get it done and I think we are on the right track and we will get it turned very quickly.

The biggest issue is communications, getting people to communicate and getting communications between departments. And we will get there. We are getting there now. So, I am confident it is going to get better. There are a number of initiatives that we are undertaking. We are working with customers to improve those relationships and communications.

We are strengthening our partnerships with our suppliers. Again opening communication between employees and the various departments. A greater emphasis on improving the functions of project management. Certainly we are continuing to work on cost reduction focus areas. And we are going to pick up the pace at research and development.

I am confident we get the job done..

Very good. I appreciate that and best of luck here..

Thank you, sir..

Thank you. Our next question is from John Tanwanteng from CJS. Please proceed with your question..

Can you discuss the scale and magnitude of potential further cost reductions? And if any of that is actually factored into your outlook for the year?.

John, clearly we are continuing to pursue our cost reduction activities, both from a supply and management. We are looking at it from an efficiency standpoint. Our capital investments that we are targeting this year are all based on cost improvement, quality and efficiency related.

So when you are looking at our guidance and our anticipated results, clearly we are looking for improvements in several facets.

When you are looking at the second half of the year, which I think you are looking at, are we flexible with requirements that we are going to have to, that we all looking at our size of the organization, it's too early to call the impact there, because that's strictly going to be tied to the success we have in the marketplace..

And I would have added to the adjustment here..

Okay. Tom, you mentioned that R&D maybe more of a focus.

Actually, can you quantify that in any way, shape or form?.

I don't know that it will be more dollars. It will be just be to expedite some of them. Some of the new products we are working on more quickly, not more dollars..

Understood. Thanks.

And are there any prospects for further share repurchases given that your stock is trading below tangible book size here?.

Clearly, we just completed our stock repurchase program in December. Clearly how we utilize our cash is something we constantly evaluate and discuss with our Board. At this point in time, there is no authorization to have a second repurchase. But we will be evaluating the best use of cash over the coming year..

Great. Thank you very much..

[Operator Instructions]. Our next question today is coming from Tom Spiro from Spiro Capital. Please proceed with your question..

Tom Spiro, Spiro Capital. Good morning, Tom. Good morning, Don..

Hi Tom.

How are you doing, buddy?.

I am doing all right, Tom and welcome back..

Thank you, sir..

Tom and Don, we used to hear not so long ago a discussion of a potential second wave of petrochemical spending.

I was curious whether there is any evidence of that out there?.

Well, clearly there is several small projects going on, I would say, right now when you are looking at the actual order flow. We are getting several projects that are coming in. From a larger size projects from a capacity standpoint, there is at least one project that we believe that will be awarded this year probably in the coming quarter or two.

And that there are several others that are in the pipeline, but the others of any size I think will be falling into our fiscal 2017. I don't see any others that appear to be close enough to be awarded between now and the end of September..

Like what's going on in the area of LNG exports?.

LNG, we have been very successful over last 12 to 18 months. We have several projects that are in our backlog. There are other projects that we are currently working on. Again, there is at least one that I think that may come to an award this fiscal year.

But at this point in time that we have several projects in the backlog that will be generating revenues between now and the end of the fiscal year..

And lastly the rules regarding the exploitation of crude have changed. I gather now we can export crude.

And I wondered whether that offers any opportunities for Powell?.

Down the road, I think it could. From an infrastructure standpoint, clearly it's going to take time to see exactly how the industry response to that opportunity and where demand is. But when you start looking at increased exports, then you would have say there would be some opportunity for capital investments in export terminals.

We will be watching closely..

Thanks very much..

Thank you, Tom..

Thank you. Our next question today is coming from John Franzreb from Sidoti & Company. Please proceed with your question..

Just one long question that has a couple of tie-ins here. During the last downturn, Tom, you kind of were reluctant to do any kind of significant layoffs because your expectations were that two or three years down the line things were going to be turning around, be a lot better.

If I heard Don correctly, the restructuring actions that you are discussing right now is more of a process and systems. It doesn't sound like there is any major head count reduction.

So, I am wondering what is your expectation of the depth and duration of this downturn? And B, are you considering changing the staffing levels to accommodate or to be balanced for those expectations?.

John, we are actually evaluating that and have been evaluating that now for a number of weeks. Obviously, one of the first things we would at is the contract labor, which is expensive and frankly not quite as efficient as our in-house people. But at some point, we may be forced to look at our staff and the workforce in the shop.

It is a difficult thing in our business, because we are relationship oriented and our talented and very skilled and knowledgeable employees. They are not easily replaced. But we will do what we have to do. I wouldn't dare to give you the magnitude or so forth at this point.

But let me tell you, we are on top of it and we will do what we have to do to improve the outlook for the business. Obviously I would rather be more focused on closing the orders, but if there are not opportunities out there, then we will deal with it once we are there..

Okay. Got it. Thank you. Thanks for your time..

Thank you. That concludes our Q&A session. I would now like to hand the call back to management for final comments..

Well, Powell has been through a number of these downturns in our 70 years of business, certainly I have and we have managed through those very effectively. Right now, our focus again is on strengthening our relationships with our customers, our suppliers and our employees.

We are making progress and I am encouraged with the attitude and dedication of our employees. We have great people. And thank you for joining us today. We look forward to talking to you at the end of next quarter. Have a good day..

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day..