Notes to Condensed Consolidated Financial Statements (Unaudited)
A. Overview and Summary of Significant Accounting Policies
Overview
Powell Industries, Inc. (we, us, our, Powell or the Company) is a Delaware corporation founded by William E. Powell in 1947. We develop, design, manufacture and service custom-engineered equipment and systems that distribute, control and monitor the flow of electrical energy and provide protection to motors, transformers and other electrically powered equipment. Our major subsidiaries, all of which are wholly owned, include Powell Electrical Systems, Inc.; Powell Canada Inc.; Powell (UK) Limited; and Powell Industries International Limited.
We are headquartered in Houston, Texas, and primarily serve the oil and gas and petrochemical markets, the electric utility market, and commercial and other industrial markets. Beyond these major markets, we also provide products and services to the light rail traction power market and other markets that include universities and government entities. We are continuously developing new channels to electrical markets through original equipment manufacturers and distribution market channels.
Basis of Presentation
The unaudited condensed consolidated financial statements include the accounts of Powell and our wholly-owned subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X for interim financial information. Certain information and footnote disclosures, normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP), have been condensed or omitted pursuant to those rules and regulations. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to fairly state the financial position, results of operations and cash flows with respect to the interim condensed consolidated financial statements have been included. The results of operations for the interim periods are not necessarily indicative of the results for the entire fiscal year. We believe that these financial statements contain all adjustments necessary so that they are not misleading.
The unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto of Powell and its subsidiaries included in Powell’s Annual Report on Form 10-K for the year ended September 30, 2025, which was filed with the Securities and Exchange Commission (SEC) on November 19, 2025.
References to Fiscal 2026 and Fiscal 2025 used throughout this report shall mean the current fiscal year ending September 30, 2026 and the prior fiscal year ended September 30, 2025, respectively.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying footnotes. The most significant estimates used in our condensed consolidated financial statements affect revenue recognition and estimated cost recognition on our customer contracts, allowance for credit losses, provision for excess and obsolete inventory, warranty accruals and income taxes. The amounts recorded for warranties, legal, income taxes, impairment of long-lived assets, intangible assets and goodwill (when applicable), liquidated damages and other contingent liabilities require judgments regarding the amount of expenses that will ultimately be incurred. We base our estimates on historical experience, forecasts and various other assumptions, as well as the specific circumstances surrounding these contingent liabilities, in evaluating the amount of liability that should be recorded. Additionally, the basis for recognition of deferred tax assets requires estimates related to future income and other assumptions regarding timing and future profitability because the ultimate realization of net deferred tax assets is dependent on the generation of future taxable income during periods in which temporary differences become deductible. Estimates routinely change as new events occur, additional information becomes available or operating environments change. Actual results may differ from our prior estimates.
Common Stock Split
On March 31, 2026, the Company’s Board of Directors adopted an amendment to the Company’s Amended and Restated Certificate of Incorporation to proportionately increase the number of shares of the Company’s authorized common stock from 30,000,000 to 90,000,000 in connection with a forward stock split.
On April 2, 2026, the Company effected a three-for-one forward split of its common stock and proportionately increased the number of shares of authorized common stock from 30,000,000 to 90,000,000 (the Stock Split). Each shareholder of record as of the close of trading on March 20, 2026 (the Record Date) received, after the close of trading on April 2, 2026, two additional shares for every one share held on the Record Date. The shares of common stock retain a par value of $0.01 per share. Trading began on a split-adjusted basis at market open on April 6, 2026.
Share and per share amounts included in the accompanying consolidated financial statements and applicable disclosures throughout this Quarterly Report on Form 10-Q have been retroactively adjusted to reflect the Stock Split.
Accounting Standards Updates Issued but Not Yet Adopted
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which enhances the transparency of income tax disclosures. It requires greater disaggregation of information in the tax rate reconciliation and income taxes paid disaggregated by jurisdiction. This ASU is effective for fiscal years beginning after December 15, 2024, and should be applied on a prospective basis. Retrospective application and early adoption were permitted. We are currently evaluating the impacts of the new standard.
In November 2024, the FASB issued ASU No. 2024-03, Reporting Comprehensive Income – Expense Disaggregation Disclosures, which requires additional qualitative and quantitative information about specific expense categories in the notes to financial statements for both interim and annual reporting periods. In January 2025, the FASB further clarified the effective date for interim reporting periods. This ASU is effective for fiscal years beginning after December 15, 2026 and interim periods within those fiscal years beginning after December 15, 2027, with early adoption permitted. We are currently evaluating the impacts of the new standard.
B. Earnings Per Share
We compute basic earnings per share by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share include the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock units. Outstanding share and per-share amounts disclosed for all periods below have been retroactively adjusted to reflect the effect of the Stock Split.
The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share (in thousands, except per share data), as adjusted for the Stock Split:
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2026 | | 2025 | | 2026 | | 2025 |
| Numerator: | | | | | | | |
| Net income | $ | 45,887 | | | $ | 46,330 | | | $ | 87,277 | | | $ | 81,093 | |
| Denominator: | | | | | | | |
| Weighted average basic shares | 36,429 | | | 36,206 | | | 36,378 | | | 36,159 | |
| Dilutive effect of restricted stock and restricted stock units | 155 | | | 317 | | | 165 | | | 330 | |
| Weighted average diluted shares | 36,584 | | | 36,523 | | | 36,543 | | | 36,489 | |
| Earnings per share: | | | | | | | |
| Basic | $ | 1.26 | | | $ | 1.28 | | | $ | 2.40 | | | $ | 2.24 | |
| Diluted | $ | 1.25 | | | $ | 1.27 | | | $ | 2.39 | | | $ | 2.22 | |
C. Detail of Selected Balance Sheet Accounts
Inventories
The components of inventories are summarized below (in thousands):
| | | | | | | | | | | |
| March 31, 2026 | | September 30, 2025 |
| Raw materials, parts and sub-assemblies | $ | 92,881 | | | $ | 90,743 | |
| Work-in-progress | 2,057 | | | 2,222 | |
| Provision for excess and obsolete inventories | (8,634) | | | (8,246) | |
| Total inventories | $ | 86,304 | | | $ | 84,719 | |
Property, Plant and Equipment
Property, plant and equipment are summarized below (in thousands):
| | | | | | | | | | | | | | | |
| | March 31, 2026 | | September 30, 2025 | | | | |
| Land | $ | 24,387 | | | $ | 24,436 | | | | | |
| Buildings and improvements | 133,187 | | | 133,455 | | | | | |
| Machinery and equipment | 100,534 | | | 99,840 | | | | | |
| Furniture and fixtures | 3,530 | | | 3,056 | | | | | |
| Construction in process | 5,728 | | | 2,110 | | | | | |
| $ | 267,366 | | | $ | 262,897 | | | | | |
| Less: Accumulated depreciation | (155,544) | | | (151,848) | | | | | |
| Total property, plant and equipment, net | $ | 111,822 | | | $ | 111,049 | | | | | |
There were no assets under finance lease as of March 31, 2026 or September 30, 2025.
Accrued Product Warranty
Activity in our product warranty accrual consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2026 | | 2025 | | 2026 | | 2025 |
| Balance at beginning of period | $ | 6,676 | | | $ | 6,106 | | | $ | 6,356 | | | $ | 5,822 | |
| Increase to warranty expense | 1,694 | | | 1,357 | | | 3,663 | | | 2,854 | |
| Deduction for warranty charges | (1,710) | | | (1,192) | | | (3,376) | | | (2,341) | |
| Change due to foreign currency translation | (23) | | | 13 | | | (6) | | | (51) | |
| Balance at end of period | $ | 6,637 | | | $ | 6,284 | | | $ | 6,637 | | | $ | 6,284 | |
D. Revenue
Revenue Recognition
Our revenues are primarily generated from the manufacturing of custom-engineered products and systems under long-term fixed-price contracts under which we agree to manufacture various products such as traditional and arc-resistant distribution switchgear and control gear, medium-voltage circuit breakers, monitoring and control communications systems, motor control centers, switches and bus duct systems. These products may be sold separately as an engineered solution but are typically integrated into custom-built enclosures which we also build. These enclosures are referred to as power control room substations (PCRs®), custom-engineered modules or electrical houses (E-Houses). Some contracts may also include the installation and the commissioning of these enclosures.
Revenue from these contracts is generally recognized over time utilizing the cost-to-cost method. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated
costs at completion of the performance obligation. We believe that this method is the most accurate representation of our performance because it directly measures the value of the services transferred to the customer over time as we incur costs on our contracts. Contract costs include all direct materials, labor and indirect costs related to contract performance, which may include indirect labor, supplies, tools, repairs and depreciation costs.
We also have contracts to provide field service inspection, installation, commissioning, modification, and repair services, as well as retrofit and retrofill components for existing systems. If the service contract terms give us the right to invoice the customer for an amount that corresponds directly with the value of our performance completed to date (i.e., a service contract in which we bill a fixed amount for each hour of service provided), then we recognize revenue over time in each reporting period corresponding to the amount that we have the right to invoice. Our performance obligations are satisfied as the work progresses. Revenues from our custom-engineered products and value-added services transferred to customers over time accounted for approximately 95% of revenues for both the three and six months ended March 31, 2026, 95% of revenues for the three months ended March 31, 2025, and 96% of revenues for the six months ended March 31, 2025.
We also have sales orders for spare parts and replacement circuit breakers for switchgear that are obsolete or that are no longer produced by the original manufacturer. Revenues from these sales orders are recognized at the time we fulfill our performance obligation to the customer, which is typically upon shipment and represented approximately 5% of revenues for both the three and six months ended March 31, 2026, 5% of revenues for the three months ended March 31, 2025, and 4% of revenues for the six months ended March 31, 2025.
Additionally, some contracts may contain a cancellation clause that could limit the amount of revenue we are able to recognize over time. In these instances, revenue and costs associated with these contracts are deferred and recognized at a point in time when the performance obligation is fulfilled.
Selling and administrative costs incurred in relation to obtaining a contract are typically expensed as incurred. We periodically utilize a third-party sales agent to obtain a contract and will pay a commission to that agent. We record the full commission liability to the third-party sales agents at the order date, with a corresponding deferred asset. As the project progresses, we record commission expense based on percentage of completion rates that correlate to the project and reduce the deferred asset. Once we have been paid by the customer, we pay the commission, and the deferred liability is reduced.
Performance Obligations
A performance obligation is a promise in a contract or with a customer to transfer a distinct good or service. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue as the performance obligations are satisfied. To determine the proper revenue recognition for contracts, we evaluate whether a contract should be accounted for as more than one performance obligation or, less commonly, whether two or more contracts should be combined and accounted for as one performance obligation. This evaluation of performance obligations requires significant judgment. The majority of our contracts have a single performance obligation where multiple engineered products and services are combined into a single custom-engineered solution. Our contracts include a standard one-year assurance warranty. Occasionally, we provide service-type warranties that will extend the warranty period. These extended warranties qualify as a separate performance obligation, and revenue is deferred and recognized over the warranty period. If we determine during the evaluation of the contract that there are multiple performance obligations, we allocate the transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.
Remaining unsatisfied performance obligations, which we refer to as backlog, represent the estimated transaction price for goods and services for which we have a material right, but work has not yet been performed. As of March 31, 2026, we had backlog of $1.8 billion, of which approximately $1.1 billion is expected to be recognized as revenue within the next twelve months. Backlog may not be indicative of future operating results as orders may be cancelled or modified by our customers. Our backlog does not include service and maintenance-type contracts for which we have the right to invoice as services are performed.
Contract Estimates
Actual revenues and project costs may vary from previous estimates due to changes in a variety of factors. The cost estimation process is based on the professional knowledge and experience of our engineers, project managers and financial professionals. Factors that are considered in estimating the work to be completed and ultimate contract recovery include the availability and productivity of labor, the nature and complexity of the work to be performed, the availability of materials, and the effect of any delays on our project performance. We periodically review our job performance, job conditions, estimated profitability and final contract settlements, including our estimate of total costs and make revisions to costs and income in the period in which the revisions are probable and reasonably estimable. We bear the risk of cost overruns in most of our contracts, which may result in
reduced profits. Whenever revisions of estimated contract costs and contract values indicate that the contract costs will exceed estimated revenues, thus creating a loss, a provision for the total estimated loss is recorded in that period.
For the six months ended March 31, 2026 and 2025, our operating results were positively impacted by $14.2 million and $8.8 million, respectively, as a result of net changes in contract estimates related to projects in progress at the beginning of the respective period. These changes in estimates resulted primarily from favorable project execution, reduced cost estimates and negotiations of variable consideration, discussed below, as well as revenue recognized from project cancellations and other changes in facts and circumstances during these periods. Gross unfavorable changes in contract estimates were immaterial for both the six months ended March 31, 2026 and 2025.
Variable Consideration
It is common for our long-term contracts to contain variable consideration that can either increase or decrease the transaction price. Due to the nature of our contracts, estimating total cost and revenue can be complex and subject to variability due to change orders, back charges, spare parts, early completion bonuses, customer allowances and liquidated damages. We estimate the amount of variable consideration based on the expected value method, which is the sum of the probability-weighted amounts, or the most likely amount method which uses various factors including experience with similar transactions and assessment of our anticipated performance. Variable consideration is included in the transaction price if legally enforceable and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur once the uncertainty associated with the variable consideration is resolved.
Contract Modifications
Contracts may be modified for changes in contract specifications and requirements. We consider contract modifications to exist when the modification either creates new or changes the enforceable rights and obligations under the contract. Most of our contract modifications are for goods and services that are not distinct from the existing performance obligation. Contract modifications result in a cumulative catch-up adjustment to revenue based on our measure of progress for the performance obligation.
Contract Balances
The timing of revenue recognition, billings and cash collections affects accounts receivable, contract assets and contract liabilities in our Condensed Consolidated Balance Sheets.
Contract assets are recorded when revenues are recognized in excess of amounts billed for fixed-price contracts as determined by the billing milestone schedule. Contract assets are transferred to accounts receivable when billing milestones have been met, or we have an unconditional right to payment.
Contract liabilities typically represent advance payments from contractual billing milestones and billings in excess of revenue recognized. It is unusual to have advanced milestone payments with a term greater than one year, which could represent a financing component of the contract.
Our contract assets and liabilities are reported in a net position on a contract-by-contract basis at the end of each reporting period and are generally classified as current.
Contract assets and liabilities as of March 31, 2026 and September 30, 2025 are summarized below (in thousands):
| | | | | | | | | | | |
| March 31, 2026 | | September 30, 2025 |
| Contract assets | $ | 113,297 | | | $ | 136,679 | |
| Contract liabilities | (314,506) | | | (297,949) | |
| Net contract liability | $ | (201,209) | | | $ | (161,270) | |
Our net contract billing position remained a net liability at both March 31, 2026 and September 30, 2025, primarily due to favorable contract billing milestones. We typically allocate a significant percentage of the progress billing to the early stages of the contract. To determine the amount of revenue recognized during the period from contract liabilities, we first allocate revenue to the individual contract liability balance outstanding at the beginning of the period until the revenue exceeds that balance. During the six months ended March 31, 2026, we recognized revenue of $204.3 million that was related to contract liabilities outstanding at September 30, 2025.
The timing of our invoice process is typically dependent on the completion of certain milestones and contract terms and is subject to agreement by our customer. Payment is typically expected within 30 days of invoice. Any uncollected invoiced
amounts for our performance obligations recognized over time, including contract retentions, are recorded as accounts receivable in the Condensed Consolidated Balance Sheets. Certain contracts allow customers to withhold a small percentage of billings pursuant to retainage provisions, and such amounts are generally due upon completion of the contract and acceptance of the project by the customer. Based on our experience in recent years, the majority of these retainage balances are expected to be collected within approximately twelve months. As of March 31, 2026 and September 30, 2025, we had retention amounts of $6.0 million and $8.1 million, respectively. Of the retained amount at March 31, 2026, $5.8 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining $0.2 million is recorded in other assets.
Disaggregation of Revenue
The following tables present our disaggregated revenue by geographic destination and market sector for the three and six months ended March 31, 2026 and 2025 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2026 | | 2025 | | 2026 | | 2025 |
| United States | $ | 232,272 | | | $ | 227,834 | | | $ | 427,150 | | | $ | 425,606 | |
| Canada | 29,823 | | | 33,970 | | | 62,282 | | | 65,664 | |
| Middle East and Africa | 13,618 | | | 8,282 | | | 23,490 | | | 12,840 | |
| Europe | 10,478 | | | 5,897 | | | 18,704 | | | 11,425 | |
| Asia/Pacific | 9,840 | | | 1,646 | | | 15,143 | | | 3,226 | |
| Mexico, Central and South America | 584 | | | 1,002 | | | 1,030 | | | 1,301 | |
| Total revenues by geographic destination | $ | 296,615 | | | $ | 278,631 | | | $ | 547,799 | | | $ | 520,062 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2026 | | 2025 | | 2026 | | 2025 |
| Oil and gas (excludes petrochemical) | $ | 112,744 | | | $ | 101,167 | | | $ | 210,633 | | | $ | 196,846 | |
| Electric utility | 80,479 | | | 70,339 | | | 149,752 | | | 121,579 | |
| Commercial and other industrial | 54,446 | | | 40,369 | | | 95,071 | | | 84,669 | |
| Petrochemical | 27,551 | | | 43,704 | | | 50,329 | | | 76,887 | |
| Light rail traction power | 9,048 | | | 10,008 | | | 17,662 | | | 18,236 | |
| All others | 12,347 | | | 13,044 | | | 24,352 | | | 21,845 | |
| Total revenues by market sector | $ | 296,615 | | | $ | 278,631 | | | $ | 547,799 | | | $ | 520,062 | |
E. Goodwill and Other Intangible Assets
Our intangible assets include goodwill of $6.0 million, which is not being amortized, and other intangible assets of $5.6 million being amortized over their estimated useful lives. No impairment expense has been recorded for the last three fiscal years.
Goodwill
The changes in the carrying amount of goodwill for the six months ended March 31, 2026 for our single reporting segment are as follows (in thousands):
| | | | | | | | |
| | Total |
| Balance as of September 30, 2025 | | $ | 6,125 | |
| Foreign currency translation adjustment | | (86) | |
| Balance as of March 31, 2026 | | $ | 6,039 | |
Other Intangible Assets
Intangible asset balances, subject to amortization, at March 31, 2026 and September 30, 2025 consisted of the following (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2026 |
| Weighted Average Remaining Useful Lives in Years | | Gross
Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Value |
| Customer relationships | 12 | | $ | 2,165 | | | $ | (113) | | | $ | 2,052 | |
| Technologies | 5 | | 3,467 | | | (371) | | | 3,096 | |
| Trademarks | 10 | | 467 | | | (30) | | | 437 | |
| Order backlog | 1 | | 54 | | | (33) | | | 21 | |
| Total intangible assets | | | $ | 6,153 | | | $ | (547) | | | $ | 5,606 | |
| | | | | | | |
| September 30, 2025 |
| Weighted Average Remaining Useful Lives in Years | | Gross
Carrying
Value | | Accumulated
Amortization | | Net
Carrying
Value |
| Customer relationships | 12 | | $ | 2,202 | | | $ | (23) | | | $ | 2,179 | |
| Technologies | 5 | | 3,518 | | | (76) | | | 3,442 | |
| Trademarks | 10 | | 475 | | | (6) | | | 469 | |
| Order backlog | 1 | | 55 | | | (7) | | | 48 | |
| Total intangible assets | | | $ | 6,250 | | | $ | (112) | | | $ | 6,138 | |
| | | | | | | |
We have an additional technology intangible asset of $0.5 million associated with an intellectual property acquired in December 2023 which has not yet been subject to amortization.
As of March 31, 2026, the estimated future amortization expense of intangible assets is as follows (in thousands):
| | | | | |
| |
| Remainder of 2026 | $ | 431 | |
| 2027 | 921 | |
| 2028 | 921 | |
| 2029 | 921 | |
| 2030 | 846 | |
| Thereafter | 1,566 | |
| Total | $ | 5,606 | |
F. Long-Term Debt
U.S. Revolver
We have a credit agreement with Bank of America, N.A. and Texas Capital Bank with an aggregate commitment of $150.0 million, consisting of $100.0 million committed by Bank of America and $50.0 million committed by Texas Capital Bank (the U.S. Revolver). The U.S. Revolver has an expiration date of October 4, 2028.
As of March 31, 2026, there were no amounts borrowed under the U.S. Revolver, and letters of credit outstanding were $78.7 million. There was $71.3 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of March 31, 2026.
As of March 31, 2026, we were in compliance with all of the financial covenants of the U.S. Revolver.
G. Commitments and Contingencies
Letters of Credit, Bank Guarantees and Bonds
Certain customers require us to post letters of credit, bank guarantees or surety bonds. These security instruments assure that we will perform under the terms of our contract. In the event of default, the counterparty may demand payment from the bank under a letter of credit or bank guarantee, or performance by the surety under a bond. To date, there have been no significant draws or claims related to security instruments for the periods reported. We were contingently liable for letters of credit of $78.7 million as of March 31, 2026. We also had surety bonds totaling $432.8 million that were outstanding, with additional bonding capacity of $767.2 million available, at March 31, 2026. We have strong surety relationships; however, a change in market conditions or the sureties’ assessment of our financial position could cause the sureties to require cash collateralization for undischarged liabilities under the bonds.
We have a $19.8 million facility agreement (Facility Agreement) between Powell (UK) Limited and a large international bank that provides Powell (UK) Limited the ability to enter into bank guarantees as well as forward exchange contracts and currency options. At March 31, 2026, we had outstanding guarantees totaling $6.4 million, with an additional capacity of $13.4 million available under this Facility Agreement. The Facility Agreement provides for customary events of default and carries cross-default provisions with the U.S. Revolver. If an event of default (as defined in the Facility Agreement) occurs and is continuing, per the terms and subject to the conditions set forth therein, obligations outstanding under the Facility Agreement may be accelerated and declared immediately due and payable. Additionally, we are required to maintain cash collateral for guarantees greater than two years. As of March 31, 2026, we were in compliance with all of the financial covenants of the Facility Agreement.
Litigation
We are involved in various legal proceedings, claims and other disputes arising from our commercial operations, projects, employees and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. Although we can give no assurances about the resolution of pending claims, litigation or other disputes, and the effect such outcomes may have on us, management believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on our consolidated financial position, or results of operations or liquidity.
Liquidated Damages
Certain of our customer contracts have schedule and performance obligation clauses that, if we fail to meet them, could require us to pay liquidated damages. Each individual contract defines the conditions under which the customer may make a claim against us. As of March 31, 2026, certain contracts had a probable exposure to liquidated damages claims of $4.4 million, which could possibly increase to $7.5 million under certain circumstances. Based on our actual or projected failure to meet these various contractual commitments, $3.8 million has been recorded as a reduction to revenue. We will attempt to obtain change orders, contract extensions or accelerate project completion, which may resolve the potential for any unrecorded liquidated damages claims. Should we fail to achieve relief on some or all of these contractual obligations, we could be required to pay additional liquidated damages, which could negatively impact our future operating results.
H. Stock-Based Compensation
Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2025 for a full description of our existing stock-based compensation plans.
Restricted Stock Units
We issue restricted stock units (RSUs) to certain officers and key employees of the Company. The fair value of the RSUs is based on the price of our common stock as reported on the NASDAQ Global Market during a specified period prior to the grant dates. Typically, these grants vest over a three-year period from the date of issuance and are a blend of time-based and performance-based shares. The portion of the grant that is time-based typically vests over a three-year period on each anniversary of the grant date, based on continued employment. The performance-based shares vest based on the three-year revenue growth, earnings and safety performance of the Company following the grant date. At March 31, 2026, there were 166,431 RSUs outstanding, as adjusted for the Stock Split. The RSUs do not have voting rights but do receive dividend equivalents upon vesting, which are accrued quarterly. Additionally, the shares of common stock underlying the RSUs are not considered issued and outstanding until vested and common stock is issued.
Total RSU activity (number of shares), as adjusted for the Stock Split, for the six months ended March 31, 2026 is summarized below:
| | | | | | | | | | | |
| Number of
Restricted
Stock
Units | | Weighted
Average
Grant Value
Per Share |
| Outstanding at September 30, 2025 | 350,658 | | | $ | 21.60 | |
| Granted | 59,085 | | | 95.75 | |
| Vested | (243,312) | | | 12.74 | |
| Forfeited/canceled | — | | | — | |
| Outstanding at March 31, 2026 | 166,431 | | | $ | 55.84 | |
During the six months ended March 31, 2026 and 2025, we recorded compensation expense of $2.5 million and $2.2 million, respectively, related to the RSUs.
Restricted Stock
Each year, every non-employee director receives restricted shares of the Company’s common stock with a grant-date value of $0.1 million. The number of granted shares is calculated by dividing the $0.1 million by the average of high and low prices of our common stock on the grant date. The shares shall vest on the earlier of the grant anniversary date or the date of the next annual meeting of stockholders, whichever occurs first. In February 2026, 4,200 shares of restricted stock were issued to our non-employee directors at a price of $184.83 per share, as adjusted for the Stock Split. During both the six months ended March 31, 2026 and 2025, we recorded compensation expense of $0.4 million related to restricted stock.
I. Fair Value Measurements
We measure certain financial assets and liabilities at fair value. Fair value is defined as an “exit price,” which represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants as of the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in valuing an asset or liability. The accounting guidance requires the use of valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. As a basis for considering such assumptions and inputs, a fair value hierarchy has been established which identifies and prioritizes three levels of inputs to be used in measuring fair value.
The three levels of the fair value hierarchy are as follows:
Level 1 — Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 — Inputs other than the quoted prices in active markets that are observable either directly or indirectly, including quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active or other inputs that are observable or can be corroborated by observable market data.
Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.
Recurring Fair Value Measurements
The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2026 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at March 31, 2026 |
| Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Fair Value at
March 31,
2026 |
| Assets: | | | | | | | |
| Cash and cash equivalents | $ | 537,712 | | | $ | — | | | $ | — | | | $ | 537,712 | |
| Short-term investments | 7,177 | | | — | | | — | | | 7,177 | |
| | | | | | | |
| Rabbi trust assets | — | | | 15,050 | | | — | | | 15,050 | |
| Liabilities: | | | | | | | |
| Deferred compensation | — | | | 14,831 | | | — | | | 14,831 | |
| Contingent future payments related to the acquisition of Remsdaq | — | | | — | | | 2,574 | | | 2,574 | |
The following table summarizes the fair value of our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2025 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at September 30, 2025 |
| Quoted Prices in
Active Markets for
Identical Assets
(Level 1) | | Significant Other
Observable
Inputs
(Level 2) | | Significant
Unobservable
Inputs
(Level 3) | | Fair Value at
September 30,
2025 |
| Assets: | | | | | | | |
| Cash and cash equivalents | $ | 450,739 | | | $ | — | | | $ | — | | | $ | 450,739 | |
| Short-term investments | 24,788 | | | — | | | — | | | 24,788 | |
| | | | | | | |
| Rabbi trust assets | — | | | 13,931 | | | — | | | 13,931 | |
| Liabilities: | | | | | | | |
| Deferred compensation | — | | | 13,707 | | | — | | | 13,707 | |
| Contingent future payments related to the acquisition of Remsdaq | — | | | — | | | 2,344 | | | 2,344 | |
Fair value guidance requires certain fair value disclosures be presented in both interim and annual reports. The estimated fair value amounts of financial instruments have been determined using available market information and valuation methodologies described below.
Cash and cash equivalents – Cash and cash equivalents, primarily funds held in money market savings instruments, are reported at their current carrying value, which approximates fair value due to the short-term nature of these instruments and are included in cash and cash equivalents in our Condensed Consolidated Balance Sheets.
Short-term investments – Short-term investments include time deposits with original maturities of three months or more.
Rabbi trust assets and deferred compensation – We hold investments in an irrevocable rabbi trust for our deferred compensation plan. The assets are primarily related to company-owned life insurance policies and are included in other assets in the accompanying Condensed Consolidated Balance Sheets. Because the mutual funds and company-owned life insurance policies are combined in the plan, they are categorized as Level 2 in the fair value measurement hierarchy. The deferred compensation liability represents the investment options that the plan participants have designated to serve as the basis for measurement of the notional value of their accounts. Because the deferred compensation liability is intended to offset the plan assets, it is also categorized as Level 2 in the fair value measurement hierarchy.
Contingent future payments related to the acquisition of Remsdaq – The contingent future payments were calculated using a probability outcome model based on internally developed assumptions; accordingly, they are categorized as Level 3 in the fair value measurement hierarchy.
There were no transfers between levels within the fair value measurement hierarchy during the quarter ended March 31, 2026.
J. Leases
Our leases consist primarily of office and warehouse space and construction equipment. All of our future lease obligations are related to non-cancelable operating leases. The following table provides a summary of lease cost components for the three and six months ended March 31, 2026 and 2025, respectively (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| Lease Cost | | 2026 | | 2025 | | 2026 | | 2025 |
| Operating lease cost | | $ | 299 | | | $ | 247 | | | $ | 583 | | | $ | 445 | |
| | | | | | | | |
Variable lease cost(1) | | 48 | | | 47 | | | 91 | | | 81 | |
Short-term lease cost(2) | | 620 | | | 668 | | | 1,211 | | | 1,307 | |
| Total lease cost | | $ | 967 | | | $ | 962 | | | $ | 1,885 | | | $ | 1,833 | |
(1) Variable lease cost represents common area maintenance charges related to our Canadian office space lease.
(2) Short-term lease cost includes leases and rentals with initial terms of one year or less.
We recognize operating lease assets and operating lease liabilities representing the present value of the remaining lease payments for leases with initial terms greater than twelve months. Leases with initial terms of twelve months or less are not recorded in our Condensed Consolidated Balance Sheets. The following table provides a summary of the operating lease assets and operating lease liabilities included in our Condensed Consolidated Balance Sheets as of March 31, 2026 and September 30, 2025, respectively (in thousands):
| | | | | | | | | | | | | | |
| Operating Leases | | March 31, 2026 | | September 30, 2025 |
| Assets: | | | | |
| Operating lease assets, net | | $ | 1,955 | | | $ | 1,664 | |
| Liabilities: | | | | |
| Current operating lease liabilities | | $ | 880 | | | $ | 882 | |
| Long-term operating lease liabilities | | 1,075 | | | 782 | |
| Total lease liabilities | | $ | 1,955 | | | $ | 1,664 | |
The following table provides the maturities of our operating lease liabilities as of March 31, 2026 (in thousands):
| | | | | | | | | | |
| | Operating Leases | | |
| Remainder of 2026 | | $ | 557 | | | |
| 2027 | | 877 | | | |
| 2028 | | 529 | | | |
| 2029 | | 162 | | | |
| 2030 | | — | | | |
| Thereafter | | — | | | |
| Total future minimum lease payments | | $ | 2,125 | | | |
| Less: present value discount (imputed interest) | | (170) | | | |
| Present value of lease liabilities | | $ | 1,955 | | | |
The weighted average discount rate as of March 31, 2026 and 2025 were 7.47% and 6.55%, respectively. The weighted average remaining lease term was 2.17 years and 2.34 years, respectively, at March 31, 2026 and 2025.
K. Segment Information
We manage our business as one reportable operating segment and our revenues are primarily generated from the development, design, manufacturing and servicing of custom-engineered equipment and systems for the distribution, control and monitoring of electrical energy.
Our chief operating decision maker (“CODM”) is our chief executive officer. The CODM manages and allocates resources on a total consolidated basis by assessing performance of revenues and earnings before interest and taxes (“EBIT”) using actual-to-actual, actual-to-plan and actual-to-forecast variance analysis. The measure of segment profit and loss regularly provided to the CODM that is most consistent with GAAP is consolidated net income, as presented in our Consolidated Statements of Operations. The CODM does not manage cost components by product, customer type or service type, nor does the CODM regularly receive disaggregated information at this level.
For the three and six months ended March 31, 2026 and 2025, the summary of segment net income, including segment expenses, for our single reportable segment were as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| | 2026 | | 2025 | | 2026 | | 2025 |
| Revenues | $ | 296,615 | | | $ | 278,631 | | | $ | 547,799 | | | $ | 520,062 | |
| Segment operating expenses: | | | | | | | |
| Cost of goods sold | 208,679 | | | 195,199 | | | 388,445 | | | 377,106 | |
| General and administrative expenses | 17,646 | | | 14,624 | | | 34,938 | | | 29,475 | |
| Sales and marketing expenses | 8,365 | | | 6,933 | | | 16,110 | | | 13,664 | |
| Research and development expenses | 4,289 | | | 2,746 | | | 7,556 | | | 5,222 | |
| Amortization | 223 | | | — | | | 445 | | | — | |
| Realized currency (gain) loss | (168) | | | 210 | | | (47) | | | 104 | |
| Total segment operating expenses | 239,034 | | | 219,712 | | | 447,447 | | | 425,571 | |
| Operating income / EBIT | 57,581 | | | 58,919 | | | 100,352 | | | 94,491 | |
| Interest income, net | (4,203) | | | (3,555) | | | (8,468) | | | (7,420) | |
| Income tax provision | 15,897 | | | 16,144 | | | 21,543 | | | 20,818 | |
| Segment net income | $ | 45,887 | | | $ | 46,330 | | | $ | 87,277 | | | $ | 81,093 | |
| | | | | | | |
| Gross profit | $ | 87,936 | | | $ | 83,432 | | | $ | 159,354 | | | $ | 142,956 | |
| | | | | | | |
Revenues by country represent sales to unaffiliated customers as determined by the ultimate destination of our products and services, summarized for the three and six months ended March 31, 2026 and 2025 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | Six months ended March 31, |
| 2026 | | 2025 | | 2026 | | 2025 |
| United States | $ | 232,272 | | | $ | 227,834 | | | $ | 427,150 | | | $ | 425,606 | |
| Canada | 29,823 | | | 33,970 | | | 62,282 | | | 65,664 | |
| Middle East and Africa | 13,618 | | | 8,282 | | | 23,490 | | | 12,840 | |
| Europe | 10,478 | | | 5,897 | | | 18,704 | | | 11,425 | |
| Asia/Pacific | 9,840 | | | 1,646 | | | 15,143 | | | 3,226 | |
| Mexico, Central and South America | 584 | | | 1,002 | | | 1,030 | | | 1,301 | |
| Total revenues | $ | 296,615 | | | $ | 278,631 | | | $ | 547,799 | | | $ | 520,062 | |
Long-lived assets by country consist of property, plant and equipment, net of accumulated depreciation and are determined based on the location of the tangible assets, summarized below (in thousands):
| | | | | | | | | | | |
| | | | |
| | March 31, 2026 | | September 30, 2025 |
| Long-lived assets: | | | |
| United States | $ | 72,540 | | | $ | 70,699 | |
| Canada | 32,102 | | | 32,744 | |
| United Kingdom | 7,180 | | | 7,606 | |
| Total | $ | 111,822 | | | $ | 111,049 | |
L. Income Taxes
The calculation of the effective tax rate is as follows (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended March 31, | | Six months ended March 31, |
| | 2026 | | 2025 | | 2026 | | 2025 |
| Income before income taxes | $ | 61,784 | | | $ | 62,474 | | | $ | 108,820 | | | $ | 101,911 | |
| | | | | | | |
| Income tax provision | 15,897 | | | 16,144 | | | 21,543 | | | 20,818 | |
| | | | | | | |
| Net income | $ | 45,887 | | | $ | 46,330 | | | $ | 87,277 | | | $ | 81,093 | |
| | | | | | | |
| Effective tax rate | 26 | % | | 26 | % | | 20 | % | | 20 | % |
Our income tax provision reflects an effective tax rate on pre-tax income of 26% and 20% for the three and six months ended March 31, 2026 and March 31, 2025. The effective tax rates for each period were favorably impacted by the estimated Research and Development (R&D) Tax Credit, which was offset by the tax expense related to certain nondeductible items. In addition, discrete items related to the vesting of RSUs recorded in the first quarters of Fiscal 2026 and Fiscal 2025 favorably impacted the effective tax rate for the six months ended March 31, 2026 and March 31, 2025.
M. Subsequent Events
Common Stock Split
On April 2, 2026, the Company effected a three-for-one forward split of its common stock and proportionately increased the number of shares of authorized common stock from 30,000,000 to 90,000,000. Each shareholder of record as of the close of trading on March 20, 2026 received, after the close of trading on April 2, 2026, two additional shares for every one share held on the Record Date. The shares of common stock retain a par value of $0.01 per share. Trading began on a split-adjusted basis at market open on April 6, 2026. See Note A. Overview and Summary of Significant Accounting Policies for addition information regarding the Common Stock Split.
Quarterly Dividend Declared
On May 5, 2026, our Board of Directors declared a quarterly cash dividend on our common stock in the amount of $0.09 per share. The dividend is payable on June 17, 2026 to shareholders of record at the close of business on May 20, 2026.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Unless otherwise indicated, all references to “we,” “us,” “our,” “Powell” or “the Company” include Powell Industries, Inc. and its consolidated subsidiaries.
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). All statements, other than statements of historical fact, included in this report are forward-looking statements. Such forward-looking statements include, but are not limited to, projections and estimates of the timing and success of specific projects and our future backlog (including our characterization of new orders as “large”or “mega,” which is used herein to indicate orders ranging from $10 to $50 million or larger than $50 million, respectively), revenues, income, acquisitions, liquidity and capital expenditures, the effect of tariffs, as well as other statements that are not historical facts contained in or incorporated by reference into this report. Statements that contain words such as “believes,” “expects,” “anticipates,” “intends,” “estimates,” “continue,” “should,” “could,” “may,” “plan,” “project,” “predict,” “potential,” “possible,” “would,” “outlook,” “will” or similar expressions are forward-looking statements.
These forward-looking statements speak only as of the date of this report. We disclaim any obligation to update or revise these statements unless required by applicable law, whether as a result of new information, future events or otherwise. We caution you not to unduly rely on them. We have based these forward-looking statements on expectations and assumptions of management at the time the statements were made. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties that could cause actual results to differ materially from those included in this report, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties include, but are not limited to, the potential failure to adequately predict costs (including in connection with our fixed-price contracts) and prevent cost overruns, including the impacts of inflation, the effect of tariffs, potentially disruptive or unanticipated changes in suppliers, the availability of cash on hand and other sources of liquidity to fund our operating expenses and capital expenditures, the impacts of future legislative and regulatory initiatives, the potential effects of ongoing military disputes (including current conflicts in Ukraine and Iran), electronic, cyber or physical security breaches, and other factors detailed herein and in our other SEC filings. Additional important risks, uncertainties and other factors are detailed below.
Risk Factors Related to our Business and Industry
•Our business is subject to the cyclical nature of the end markets that we serve. This cyclicality has had, and may continue to have, an adverse effect on our operating results.
•Our industry is highly competitive.
•Our backlog is subject to unexpected adjustments, cancellations and scope reductions and, therefore, may not be a reliable indicator of our future earnings.
•Failure to place competitive bids and adequately project future costs may result in losses on our fixed-price contracts with customers.
•Supplier concentration and limited supplier capacity may adversely impact our business and results of operations.
•Our business requires skilled and unskilled labor, and we may be unable to attract and retain qualified employees.
•Revenues recognized over time from our fixed-price contracts could result in volatility in our results of operations.
•We are exposed to risks relating to the use of subcontractors.
•Technological innovations may make existing products and production methods obsolete. The development or use of Artificial Intelligence (AI) by our competitors or other third parties may impair our ability to compete effectively and adversely affect our business, financial condition and results of operations.
•We may not be successful in our AI initiatives, which could adversely affect our business, reputation, and results of operations.
•Unforeseen difficulties with expansions, relocations, or consolidations of existing facilities could adversely affect our operations.
•Quality problems with our products could harm our reputation and erode our competitive position.
•Many of our contracts contain performance obligations that may subject us to penalties or additional liabilities.
•Growth and product diversification through strategic acquisitions involve a number of risks.
•Misconduct by our employees or subcontractors, or a failure to comply with applicable laws or regulations, could harm our reputation, damage our relationships with customers and subject us to criminal and civil enforcement actions.
•Unsatisfactory safety performance may subject us to penalties, negatively impact customer relationships, result in higher operating costs, and negatively impact employee morale and turnover.
Risk Factors Related to our Financial Condition and Markets
•Global economic uncertainty and financial market conditions may impact our customer base, suppliers and backlog.
•Fluctuations in the price and supply of materials used to manufacture our products may reduce our profits and could adversely impact our ability to meet commitments to our customers.
•Obtaining surety bonds, letters of credit, bank guarantees, or other financial assurances, may be necessary for us to successfully bid on and obtain certain contracts.
•Failure to remain in compliance with covenants or obtain waivers or amendments under our credit agreement could adversely impact our business.
•We extend credit to customers in conjunction with our performance under fixed-price contracts which subjects us to potential credit risks.
•A significant portion of our revenues may be concentrated among a small number of customers and may be subject to the risks of particular industries.
•Our international operations expose us to risks that are different from, or possibly greater than, the risks we are exposed to domestically and may adversely affect our operations.
•Our ability to access credit and capital markets may be limited, which could adversely affect our liquidity, operations, and growth strategy.
Risk Factors Related to our Corporate Structure and our Common Stock
•Provisions of our charter documents or Delaware law could delay or prevent a change in control of our company, even if that change would be beneficial to our shareholders.
•The personal liability of our directors and officers for monetary damages for breach of their fiduciary duty of care is limited by the Delaware General Corporation Law and by our certificate of incorporation.
•The exclusive-forum provision contained in our bylaws could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or other employees.
•Our stock price could decline or fluctuate significantly due to unforeseen circumstances that may be outside of our control. These fluctuations may cause our stockholders to incur losses.
•There can be no assurance that we will declare or pay future dividends on our common stock.
•We may issue preferred stock on terms that could adversely affect the voting power or value of our common stock.
Risk Factors Related to Legal and Regulatory Matters
•Our operations could be adversely impacted by the effects of government regulations.
•Actual and potential claims, lawsuits and proceedings could ultimately reduce our profitability and liquidity and weaken our financial condition.
•Changes in tax laws and regulations may change our effective tax rate and could have a material effect on our financial results.
•Failure to develop, obtain, enforce, and protect intellectual property rights or third-party claims that we are infringing on their intellectual property could harm our business.
•Significant developments arising from tariffs and other economic proposals could adversely impact our business.
•Failures or weaknesses in our internal controls over financial reporting could adversely affect our ability to report on our financial condition and results of operations accurately or on a timely basis.
General Risk Factors
•We carry insurance against many potential liabilities, but our management of risk may leave us exposed to unidentified or unanticipated risks.
•Catastrophic events, including natural disasters, health epidemics, acts of war and terrorism, climate change, among others, could disrupt our business.
•A failure in our business systems or cybersecurity attacks on any of our facilities, or those of third parties, could adversely affect our business, results of operations and reputation.
•Data privacy, data protection, and information security may require significant resources and present certain risks.
•Changes in and compliance with Environmental, Social, and Governance (ESG) initiatives could adversely impact our business.
•The departure of key personnel could disrupt our business.
Refer to “Risk Factors” in Part I. Item 1A of our Annual Report on Form 10-K for the year ended September 30, 2025, which was filed with the SEC on November 19, 2025. We can provide no assurance that the forward-looking statements contained in this report will occur as expected, and actual results may differ materially from those included in this report.
Investors should note that we announce material financial information in SEC filings, press releases and public conference calls. Based on guidance from the SEC, we may use the Investors section of our website to communicate with investors. It is possible that the financial and other information posted there could be deemed to be material information. The information on our website is not part of, and is not incorporated to, this Quarterly Report on Form 10-Q.