10-Q 1 powl-20220630.htm 10-Q powl-20220630
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-12488 
Powell Industries, Inc.
(Exact name of registrant as specified in its charter)
 
Delaware 88-0106100
(State or other jurisdiction of
incorporation or organization)
 (I.R.S. Employer
Identification No.)
 
8550 Mosley Road 
Houston
Texas77075-1180
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code:
(713) 944-6900
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, par value $0.01 per sharePOWLNASDAQ Global Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes       No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes      No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No
At August 1, 2022, there were 11,781,993 outstanding shares of the registrant’s common stock, par value $0.01 per share.
1





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
 

2





PART I — FINANCIAL INFORMATION 
Item 1. Condensed Consolidated Financial Statements

POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Unaudited)
(In thousands, except share and per share data)
June 30, 2022September 30, 2021
ASSETS  
Current Assets:  
Cash and cash equivalents$75,830 $114,314 
Short-term investments22,682 19,667 
Accounts receivable, less allowance for credit losses of $517 and $333
103,022 78,304 
Contract assets68,245 54,199 
Inventories48,739 29,835 
Income taxes receivable291 161 
Prepaid expenses3,165 4,382 
Other current assets2,798 1,599 
Total Current Assets324,772 302,461 
Property, plant and equipment, net102,023 109,457 
Operating lease assets, net1,909 3,453 
Goodwill and intangible assets, net1,003 1,003 
Deferred income taxes10,187 4,639 
Other assets11,910 15,179 
Total Assets$451,804 $436,192 
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current Liabilities:  
Current maturities of long-term debt$ $400 
Accounts payable46,235 45,247 
Contract liabilities66,582 42,433 
Accrued compensation and benefits15,427 20,395 
Accrued product warranty2,288 2,531 
Current operating lease liabilities953 1,415 
Income taxes payable356 1,076 
Other current liabilities12,509 7,659 
Total Current Liabilities144,350 121,156 
Deferred compensation8,100 8,613 
Long-term operating lease liabilities1,159 2,413 
Other long-term liabilities2,247 2,787 
Total Liabilities155,856 134,969 
Commitments and Contingencies (Note F)
Stockholders' Equity:  
Preferred stock, par value $0.01; 5,000,000 shares authorized; none issued
  
Common stock, par value $0.01; 30,000,000 shares authorized; 12,586,811 and 12,497,691 shares issued, respectively
126 125 
Additional paid-in capital65,661 63,948 
Retained earnings278,017 282,505 
Treasury stock, 806,018 shares at cost
(24,999)(24,999)
Accumulated other comprehensive loss(22,857)(20,356)
Total Stockholders' Equity295,948 301,223 
Total Liabilities and Stockholders' Equity$451,804 $436,192 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

3





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
 
 Three months ended June 30,Nine months ended June 30,
 2022202120222021
Revenues$135,483 $115,813 $369,907 $341,105 
Cost of goods sold116,424 98,646 318,329 288,513 
Gross profit19,059 17,167 51,578 52,592 
Selling, general and administrative expenses16,404 16,710 49,374 50,259 
Research and development expenses1,806 1,772 5,342 5,046 
Amortization of intangible assets 44  132 
Operating income (loss)849 (1,359)(3,138)(2,845)
Other income(2,006) (2,285) 
Interest expense (income)(63)(21)(79)(78)
Income (loss) before income taxes2,918 (1,338)(774)(2,767)
Income tax provision (benefit)(6,143)703 (5,772)(138)
Net income (loss)$9,061 $(2,041)$4,998 $(2,629)
Income (loss) per share:  
Basic$0.77 $(0.17)$0.42 $(0.22)
Diluted$0.76 $(0.17)$0.42 $(0.22)
Weighted average shares:  
Basic11,810 11,720 11,792 11,700 
Diluted11,901 11,720 11,877 11,700 
Dividends per share$0.26 $0.26 $0.78 $0.78 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

4





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
(In thousands)
 
 
 Three months ended June 30,Nine months ended June 30,
 2022202120222021
Net income (loss)$9,061 $(2,041)$4,998 $(2,629)
Foreign currency translation adjustments(3,457)1,301 (2,501)6,544 
Comprehensive income (loss)$5,604 $(740)$2,497 $3,915 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

5





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)

Accumulated
AdditionalOther
 Common StockPaid-inRetainedTreasury StockComprehensive 
 SharesAmountCapitalEarningsSharesAmountIncome/(Loss)Totals
Balance, September 30, 202112,498 $125 $63,948 $282,505 (806)$(24,999)$(20,356)$301,223 
Net loss— — — (2,846)— — — (2,846)
Foreign currency translation adjustments— — — — — — 54 54 
Stock-based compensation72 1 1,007 — — — — 1,008 
Shares withheld in lieu of employee tax withholding— — (660)— — — — (660)
Dividends— — 69 (3,269)— — — (3,200)
Balance, December 31, 202112,570 $126 $64,364 $276,390 (806)$(24,999)$(20,302)$295,579 
Net loss— — — (1,217)— — — (1,217)
Foreign currency translation adjustments— — — — — — 902 902 
Stock-based compensation17 — 711 — — — — 711 
Dividends— — — (3,105)— — — (3,105)
Balance, March 31, 202212,587 $126 $65,075 $272,068 (806)$(24,999)$(19,400)$292,870 
Net income— — — 9,061 — — — 9,061 
Foreign currency translation adjustments— — — — — — (3,457)(3,457)
Stock-based compensation— — 588 — — — — 588 
Shares withheld in lieu of employee tax withholding— — (3)— — — — (3)
Dividends— — (3,112)— — — (3,111)
Balance, June 30, 202212,587 $126 $65,661 $278,017 (806)$(24,999)$(22,857)$295,948 

























POWELL INDUSTRIES, INC. AND SUBSIDIARIES
6





Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
(In thousands)

Accumulated
AdditionalOther
 Common StockPaid-inRetainedTreasury StockComprehensive 
 SharesAmountCapitalEarningsSharesAmountIncome/(Loss)Totals
Balance, September 30, 202012,422 $124 $61,998 $294,016 (806)$(24,999)$(24,513)$306,626 
Net loss— — — (364)— — — (364)
Foreign currency translation adjustments— — — — — — 4,349 4,349 
Stock-based compensation59 1 893 — — — — 894 
Shares withheld in lieu of employee tax withholding— — (632)— — — — (632)
Dividends— — — (3,028)— — — (3,028)
Balance, December 31, 202012,481 $125 $62,259 $290,624 (806)$(24,999)$(20,164)$307,845 
Net loss— — — (225)— — — (225)
Foreign currency translation adjustments— —  
— — — 894 894 
Stock-based compensation17 — 853 — — — — 853 
Dividends— — — (3,035)— — — (3,035)
Balance, March 31, 202112,498 $125 $63,112 $287,364 (806)$(24,999)$(19,270)$306,332 
Net loss— — — (2,041)— — — (2,041)
Foreign currency translation adjustments— — — — — — 1,301 1,301 
Stock-based compensation — 388 — — — — 388 
Dividends— — — (3,039)— — — (3,039)
Balance, June 30, 202112,498 $125 $63,500 $282,284 (806)$(24,999)$(17,969)$302,941 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
 Nine months ended June 30,
 20222021
Operating Activities:  
Net income (loss)$4,998 $(2,629)
Adjustments to reconcile net income (loss) to net cash used in operating activities:  
Depreciation and amortization7,206 7,899 
Gain on sale of division(2,006) 
Stock-based compensation2,308 2,135 
Bad debt expense (recovery), net274 194 
Deferred income taxes(5,548)(586)
Changes in operating assets and liabilities:  
Accounts receivable, net(27,011)(1,195)
Contract assets and liabilities, net10,001 (35,673)
Inventories(19,387)991 
Income taxes(857)(1,502)
Prepaid expenses and other current assets18 1,490 
Accounts payable 1,526 (2,202)
Accrued liabilities(676)(7,129)
Other, net1,370 (1,486)
Net cash used in operating activities(27,784)(39,693)
Investing Activities:  
Purchases of short-term investments(15,104)(19,868)
Maturities of short-term investments11,873 19,821 
Proceeds from sale of division4,348  
Purchases of property, plant and equipment(1,765)(2,480)
Proceeds from sale of property, plant and equipment629 40 
Proceeds from life insurance policies 474 
Net cash used in investing activities(19)(2,013)
Financing Activities:  
Payments on industrial development revenue bonds(400)(400)
Shares withheld in lieu of employee tax withholding(663)(632)
Dividends paid(9,170)(9,102)
Net cash used in financing activities(10,233)(10,134)
Net decrease in cash and cash equivalents(38,036)(51,840)
Effect of exchange rate changes on cash and cash equivalents(448)299 
Cash and cash equivalents at beginning of period114,314 160,216 
Cash and cash equivalents at end of period$75,830 $108,675 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

8





POWELL INDUSTRIES, INC. AND SUBSIDIARIES
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 incorporated in the state of Delaware. Powell's predecessor companies were founded 75 years ago by William E. Powell in 1947. Our major subsidiaries, all of which are wholly owned, include: Powell Electrical Systems, Inc.; Powell (UK) Limited; Powell Canada Inc.; and Powell Industries International, B.V.
We develop, design, manufacture and service custom-engineered equipment and systems which (1) distribute, control and monitor the flow of electrical energy and (2) provide protection to motors, transformers and other electrically powered equipment. We are headquartered in Houston, Texas and serve the oil and gas and petrochemical markets, which include onshore and offshore production, liquefied natural gas (LNG) facilities and terminals, pipelines, refineries and petrochemical plants. Additional markets include electric utility and light rail traction power as well as mining and metals, pulp and paper and other municipal, commercial and industrial markets.
Impact of Global Economic Uncertainty and Oil and Gas Commodity Market Volatility on Powell
Various factors resulting in global economic uncertainty have negatively impacted our results over the past two years. Uncertainty and demand disruptions have resulted in considerable volatility across commodity markets. Although global oil prices have rebounded, our industrial end markets have responded with modest increases in capital expenditures. Additionally, we continue to experience supply chain disruptions driven predominately by availability and cost volatility across our raw materials, components and labor force. All of these factors have contributed to the lower margins realized in Fiscal 2022. As we address disruptions and increased costs, we continue to work with our suppliers of key components and commodities to ensure that we are able to meet our customer commitments. Additionally, we have adjusted our pricing models in response to the increased cost environment.
The consequences of a continued and prolonged global economic decline could include, but are not limited to, reductions in commercial and industrial activity in the markets we serve. The Company cannot reasonably estimate the duration or extent to which the resulting disruptions may materially impact our business, results of operations or cash flows. We will take prudent measures to maintain our strong liquidity and cash position, which may include reducing our capital expenditures and research and development costs, as well as reducing or eliminating future dividend payments.
Basis of Presentation
These unaudited condensed consolidated financial statements include the accounts of Powell and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
 
These 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.
These 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, 2021, which was filed with the Securities and Exchange Commission (SEC) on December 8, 2021.
References to Fiscal 2022 and Fiscal 2021 used throughout this report shall mean our fiscal years ended September 30, 2022 and 2021, respectively.
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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, the 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 (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 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 the 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.

B. Earnings Per Share
We compute basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per common and potential common share includes the weighted average of additional shares associated with the incremental effect of dilutive restricted stock and restricted stock units.
The following table reconciles basic and diluted weighted average shares used in the computation of earnings per share (in thousands, except per share data):
 Three months ended June 30,Nine months ended June 30,
 2022202120222021
Numerator:  
Net income (loss)$9,061 $(2,041)$4,998 $(2,629)
Denominator:    
Weighted average basic shares11,810 11,720 11,792 11,700 
Dilutive effect of restricted stock units91  85  
Weighted average diluted shares11,901 11,720 11,877 11,700 
Income (loss) per share:    
Basic$0.77 $(0.17)$0.42 $(0.22)
Diluted$0.76 $(0.17)$0.42 $(0.22)

For each of the three and nine months ended June 30, 2021, we incurred net losses and therefore all potential common shares were deemed to be anti-dilutive.

C. Detail of Selected Balance Sheet Accounts
Allowance for Credit Losses
Activity in our allowance for credit losses consisted of the following (in thousands):
 Three months ended June 30,Nine months ended June 30,
 2022202120222021
Balance at beginning of period$703 $382 $333 $510 
Bad debt expense (recovery), net(170)326 274 194 
Uncollectible accounts written off, net of recoveries6 (168)(64)(178)
Change due to foreign currency translation(22)5 (26)19 
Balance at end of period$517 $545 $517 $545 
 
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Inventories
The components of inventories are summarized below (in thousands):
June 30, 2022September 30, 2021
Raw materials, parts and sub-assemblies, net$47,458 $28,688 
Work-in-progress1,281 1,147 
Total inventories$48,739 $29,835 

Accrued Product Warranty
Activity in our product warranty accrual consisted of the following (in thousands):
 Three months ended June 30,Nine months ended June 30,
 2022202120222021
Balance at beginning of period$2,347 $2,467 $2,531 $2,771 
Increase to warranty expense462 515 1,077 1,568 
Deduction for warranty charges(499)(557)(1,303)(1,970)
Change due to foreign currency translation(22)7 (17)63 
Balance at end of period$2,288 $2,432 $2,288 $2,432 
 

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 value-added services such as field service inspection, installation, commissioning, modification and repair, as well as retrofit and retro-fill 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 with which 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 94% of total revenues for the three and nine months ended June 30, 2022, 93% of total revenues for the three months ended June 30, 2021 and 92% of total revenues for the nine months ended June 30, 2021.
Additionally, we 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 6% of total revenues for the three and nine months ended June 30, 2022, 7% of total revenues for the three months ended June 30, 2021 and 8% of total revenues for the nine months ended June 30, 2021.
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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 been performed. As of June 30, 2022, we had backlog of $502.5 million, of which approximately $379.6 million 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 upon 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 nine months ended June 30, 2022 and 2021, our operating results were positively impacted by $5.9 million and $11.4 million, respectively, as a result of 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 and negotiations of variable consideration, discussed below, as well as revenue and reduced costs recognized from project cancellations and other changes in facts and circumstances during these periods. The decrease from the prior year is primarily due to the increase in direct materials cost, which we were not able to pass on to our customers for projects awarded in prior years.
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.
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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 on 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 June 30, 2022 and September 30, 2021 are summarized below (in thousands):
June 30, 2022September 30, 2021
Contract assets$68,245 $54,199 
Contract liabilities(66,582)(42,433)
Net contract asset$1,663 $11,766 
The decrease in net contract asset at June 30, 2022 from September 30, 2021 was primarily due to the timing of contract billing milestones and new orders as well as cash used on our large industrial project awarded in Fiscal 2020. 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 nine months ended June 30, 2022, we recognized revenue of approximately $36.0 million that was related to contract liabilities outstanding at September 30, 2021.
The timing of our invoice process is typically dependent on the completion of certain milestones and contract terms and 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 June 30, 2022 and September 30, 2021, accounts receivable included retention amounts of $9.2 million and $9.6 million, respectively. Of the retained amount at June 30, 2022, $8.6 million is expected to be collected in the next twelve months and is recorded in accounts receivable. The remaining $0.6 million is recorded in other assets.
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Disaggregation of Revenue
The following tables present our disaggregated revenue by geographic destination and market sector for the three and nine months ended June 30, 2022 and 2021 (in thousands):
Three months ended June 30,Nine months ended June 30,
2022202120222021
United States$102,931 $88,412 $272,069 $256,937 
Canada23,599 16,529 60,777 48,354 
Europe, Middle East and Africa6,697 8,926 30,078 28,120 
Asia/Pacific1,645 1,651 4,235 6,376 
Mexico, Central and South America611 295 2,748 1,318 
     Total revenues by geographic destination$135,483 $115,813 $369,907 $341,105 

Three months ended June 30,Nine months ended June 30,
2022202120222021
Oil and gas (excludes petrochemical)$58,669 $49,272 $155,324 $139,443 
Petrochemical15,187 15,365 51,268 34,725 
Electric utility30,173 26,175 82,079 82,797 
Traction power9,775 13,821 31,200 42,322 
All others21,679 11,180 50,036 41,818 
     Total revenues by market sector$135,483 $115,813 $369,907 $341,105 


E. Long-Term Debt
Long-term debt consisted of the following (in thousands):
June 30, 2022September 30, 2021
Industrial development revenue bonds$ $400 
Less: current portion (400)
Total long-term debt $ $ 
U.S. Revolver
We have a credit agreement with Bank of America, N.A. (as amended, the "U.S. Revolver"), which is a $75.0 million revolving credit facility that is available for both borrowings and letters of credit and expires September 27, 2024. The U.S. Revolver states that up to $30 million may be deducted from the amount of letters of credit outstanding (not to be less than zero) when calculating the consolidated funded indebtedness which is a component of the consolidated net leverage ratio. Additionally, we have the option to cash collateralize all or a portion of the letters of credit outstanding, which would favorably impact the consolidated funded indebtedness calculation and the consolidated net leverage ratio. As of June 30, 2022, there were no amounts borrowed under the U.S. Revolver and letters of credit outstanding were $30.8 million. There was $44.2 million available for the issuance of letters of credit and borrowings under the U.S. Revolver as of June 30, 2022.
We are required to maintain certain financial covenants, the most significant of which are a consolidated net leverage ratio less than 3.0 to 1.0 and a consolidated interest coverage ratio of greater than 3.0 to 1.0. Our most restrictive covenant, the consolidated net leverage ratio, is the ratio of earnings before interest, taxes, depreciation, amortization and stock-based compensation (EBITDAS) to funded indebtedness. An increase in indebtedness, which includes letters of credit, or a decrease in EBITDAS could restrict our ability to issue letters of credit or borrow under the U.S. Revolver. Additionally, we must maintain a consolidated cash balance of $30 million at all times, which can be deducted from the letters of credit outstanding as noted above. The U.S. Revolver also contains a "material adverse effect" clause which is a material change in our operations, business, properties, liabilities or condition (financial or otherwise) or a material impairment of our ability to perform our obligations under our credit agreements. As of June 30, 2022, we were in compliance with all of the financial covenants of the U.S. Revolver.
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The U.S. Revolver allows the Company to elect that any borrowing under the facility bears an interest rate based on either the base rate or the eurocurrency rate, in each case, plus the applicable rate. The base rate is generally the highest of (a) the federal funds rate plus 0.50%, (b) the Bank of America prime rate or (c) the London Interbank Offered Rate (LIBOR) successor rate plus 1.00%. The applicable rate is generally a range from (0.25)% to 1.75% depending on the type of loan and the Company's consolidated net leverage ratio. On December 31, 2021, the Company entered into a LIBOR Transition Amendment with Bank of America that states that LIBOR will be replaced with a successor rate in accordance with the U.S. Revolver.
The U.S. Revolver is collateralized by a pledge of 100% of the voting capital stock of each of our domestic subsidiaries and 65% of the voting capital stock of each non-domestic subsidiary. The U.S. Revolver provides for customary events of default and carries cross-default provisions with other existing debt agreements. If an event of default (as defined in the U.S. Revolver) occurs and is continuing, on the terms and subject to the conditions set forth in the U.S. Revolver, amounts and letters of credit outstanding under the U.S. Revolver may be accelerated and may become immediately due and payable.
Industrial Development Revenue Bonds
We borrowed $8.0 million in October 2001 through a loan agreement funded with proceeds from tax-exempt industrial development revenue bonds (Bonds) for the completion of our Northlake, Illinois facility. The Bonds matured on October 1, 2021 and our final payment of $0.4 million was made.
 
F. 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 $30.8 million as of June 30, 2022. We also had surety bonds totaling $159.9 million that were outstanding, with additional bonding capacity of $440.1 million available, at June 30, 2022. 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 $6.1 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 June 30, 2022, we had outstanding guarantees totaling $3.1 million and amounts available under this Facility Agreement were $3.0 million. The Facility Agreement provides for customary events of default, and carries cross-default provisions with our 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 June 30, 2022, 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.

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G. Stock-Based Compensation
Refer to our Annual Report on Form 10-K for the fiscal year ended September 30, 2021 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 on 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 earnings performance of the Company following the grant date. At June 30, 2022, there were 234,852 RSUs outstanding. 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) for the nine months ended June 30, 2022 is summarized below:
Number of
Restricted
Stock
Units
Weighted
Average
Grant Value
Per Share
Outstanding at September 30, 2021199,919 $30.34 
Granted107,350 24.79 
Vested(72,017)32.68 
Forfeited/canceled(400)38.58 
Outstanding at June 30, 2022234,852 $26.91 
 
During the nine months ended June 30, 2022 and 2021, we recorded compensation expense of $1.9 million and $1.7 million, respectively, related to the RSUs. 
Restricted Stock
Each non-employee director receives 2,400 restricted shares of the Company’s common stock annually. Fifty-percent of the restricted stock granted to each of our non-employee directors vests immediately, while the remaining fifty-percent vests on the anniversary of the grant date. Compensation expense is recognized immediately for the first fifty-percent of the restricted stock granted, while compensation expense for the remaining fifty-percent is recognized over the remaining vesting period. In February 2022, 16,800 shares of restricted stock were issued to our non-employee directors under the 2014 Non-Employee Director Equity Incentive Plan at a price of $23.09 per share. During the nine months ended June 30, 2022 and 2021, we recorded compensation expense of $0.4 million and $0.5 million, respectively, related to restricted stock.  


H. 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.
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Level 3 — Unobservable inputs that are supported by little or no market data and require the reporting entity to develop its own assumptions.
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 June 30, 2022 (in thousands):
 
 Fair Value Measurements at June 30, 2022
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value at
June 30,
2022
Assets:    
Cash and cash equivalents$75,830 $ $ $75,830 
Short-term investments22,682   22,682 
Other assets 7,569  7,569 
Liabilities:    
Deferred compensation 8,052  8,052 
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, 2021 (in thousands):
 Fair Value Measurements at September 30, 2021
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,
2021
Assets:    
Cash and cash equivalents$114,314 $ $ $114,314 
Short-term investments19,667   19,667 
Other assets 9,100  9,100 
Liabilities:    
Deferred compensation 8,527  8,527 

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.
Other 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.
There were no transfers between levels within the fair value measurement hierarchy during the quarter ended June 30, 2022.

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I. Leases

Our leases consist primarily of office and manufacturing space and construction equipment. All of our future lease obligations are related to non-cancelable operating leases. The most significant portion of our lease portfolio relates to leases of office and manufacturing facilities in Canada which we no longer occupy. We currently sublease the majority of these Canadian facilities. The following table provides a summary of lease cost components for the three and nine months ended June 30, 2022 and 2021, respectively (in thousands):

Three months ended June 30,Nine months ended June 30,
Lease Cost2022202120222021
Operating lease cost$551 $598 $1,695 $1,835 
     Less: sublease income(171)(175)(519)(532)
Variable lease cost(1)
114 117 372 334 
Short-term lease cost(2)
413 365 1,266 853 
Total lease cost$907 $905 $2,814 $2,490 

(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. As of June 30, 2022 and September 30, 2021, our operating lease assets have been reduced by a lease accrual of $0.2 million and $0.4 million, respectively, related to certain unused facility leases in Canada. The following table provides a summary of the operating lease assets and operating lease liabilities included in our Condensed Consolidated Balance Sheets as of June 30, 2022 and September 30, 2021, respectively (in thousands):

Operating LeasesJune 30, 2022September 30, 2021
Assets:
Operating lease assets, net$1,909 $3,453 
Liabilities:
Current operating lease liabilities953 1,415 
Long-term operating lease liabilities1,159 2,413 
Total lease liabilities$2,112 $3,828 

The following table provides the maturities of our operating lease liabilities as of June 30, 2022 (in thousands):
Operating Leases
Remainder of 2022$529 
20231,336 
2024221 
202558 
202620 
Thereafter2