[00:00:03] Speaker A: Welcome to Fernway Insights, where prominent leaders and influencers shaping the industrial and industrial tech sector discuss topics that are critical for executives, boards and investors. Fernway Insights is brought to you by Fernway Group, a firm focused on working with industrial companies to make them unrivaled. Segment of one leaders to learn more about Fernway Group, please visit our
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[00:00:38] Speaker B: Hi everyone, this is Danielle Isbel, manager of operations at Fernway Group. Welcome to another episode of the Fernway Insights podcast. Today we continue with our focus on transformation in industrials, and our guest is Mister Brett Koch, president and CEO at Powell Industries, a role he's held since October 2016. He was elected chairman of the board for PAL Industries on October 1, 2019.
Mister Cope has nearly 30 years of experience in the electrical, automation and process industries. Prior to joining Powell, Mister Cope spent 20 years with ABB in various engineering project operations and sales management positions. Mister Cope has been with the company a little over ten years now, a period in which the company has weathered many storms like crude oil price, downfall in 2015 and Covid-19 and they've come out strong and continued with their transformative journey.
And with that, I welcome Brett Koch. Brett, welcome to our podcast. Delighted you're here today to talk to us about Powell Industries and your own journey.
[00:01:49] Speaker C: Thank you, Danielle. Really pleased to be here. As I noted earlier, I think this is my first ever podcast, so thank you for that.
[00:01:58] Speaker B: Well, let's start by talking about Powell Industries for the benefit of our audience. Tell us a bit about the company and what it does.
[00:02:05] Speaker C: Sure.
Powell is a publicly traded manufacturer. Roughly $500 million of electrical distribution equipment. We make breakers and switchgear and motor control in the medium and low voltage distribution space. We deliver product systems and solutions. Many of our solutions are engineered to order for our client base in primarily the industrial, utility, and commercial markets.
[00:02:29] Speaker B: Given the exposure to the energy markets, PAl's business is somewhat cyclical. How does the company stay prepared for the cyclicality?
[00:02:38] Speaker C: We're very cyclical. We're hitting our 75th year, this year of delivering solutions to the market. And when I arrived ten years ago, one of our core tenets is the can do spirit. And so there's a very strong entrepreneurial culture within the Powell family that's a lot of fun to be with like minded folks that want to accomplish the mission. The challenge is during the cycles is without process and structure.
We are sometimes slow to the ramp and sometimes whether the ramp's up and down, depending on the cycle. So in the last ten years, we spent a lot of time and our teams building out process of structure from understanding the risk of the project that we're looking at with our clients, understanding the risks of the company, understanding our supply chain, building out the supply chain from a process standpoint, once we take the project, how do we execute that? Through professional project, interact with our client, which we have a rich history of repeat relationships. But to raise our game, if you will, to ensure that when we do take the project, we absolutely can deliver on time and on budget for our client.
And that process is all about the people understanding that, whether it's an upcycle or down cycle, how do you plan? So without the process and the structure, it's all about the people understanding that line of sight far out, not just tomorrow, but one, two, three years out, and try to plan for the eventuality of what the cycle might do.
We still are going to cycle for a while. That is how we're built in our culture. But I think our ability to ramp up and down today is something we definitely improved upon over the last ten years.
[00:04:11] Speaker B: Yeah, wonderful. So before the pandemic hit, Pal was ascending from a cyclical trough that ended in 2017 and was on track to hit all time highs on stock price. Tell us how Covid impacted your business. Mostly, I would say, from a challenges perspective. What are you doing or have you done to address these challenges?
[00:04:30] Speaker C: Well, per your opening comments, I've been in the role five years now, as in the CEO spot to lead the company. And I would argue we're kind of in a third recession in the five years. So we had the oil crashed, 1415 when oil plummeted, and we were all paying high gas prices. The pandemic, when it hit, definitely impacted mostly our industrial market very, very severely. Our order intake dropped down the whole world. Nobody really had a pandemic playbook. So we were immediately all concerned about the health and well being of our teams. What does it mean? Powell has disaster playbooks being a number of facilities located here in the Gulf coast. We have a plan for that, but I can't tell you. We had a pandemic plan. We do today. So we met every day for the better part of six months as a management team. We learned we interacted with the board, we interacted with our teams, we interact with our clients, and came out stronger as a result of that, understand how to work safely in the pandemic culture. And now the third wave, I would argue, is what I'll call the supply chain logistic kind of evolution as a result of the pandemic. It is definitely having companies like Polyde in the manufacturing space, not just domestically, here in the states, North America, but globally. And it's a new challenge. It's being laid upon an ongoing, hopefully end of the pandemic. But I don't think anybody could say that yet. So it's challenged folks. And the other point I would make about the COVID pandemic that I think we've recognized or we believe is that unlike other recessions where people leave the workforce and things happen and people cost out and look at smarter ways to, to be capital efficient, the COVID transition with new ways of working around the world and new models and the revolution that's happening around the world, the COVID pandemic is accelerating transformation across the world. And that's something that we talk a lot about here at the board and with the company about how to position for that because it's coming quite quick as a disruptor.
[00:06:26] Speaker B: Yeah, very true.
So there are multiple trends that are shaping the electrical energy industry today, like shift to renewable energy, rise of energy storage, grid modernization and energy efficient building codes. So what opportunities are emerging for power industries because of those trends?
[00:06:46] Speaker C: Well, as I just noted, there are a lot of trends that are changing very fast in the world of electrification. I believe Powell's at the right place at the right time. We're the last us publicly traded company that actually manufactures intellectual property around the breaker. We focus on about 38,000 volts and down, we call that medium voltage and down below 1000 volts is low voltage. So we develop solutions and build products here in North America. Most other competitors are building those offshore today you'll find those international markets, but Powell is one of the last that builds it here in the states. So I think with this transformation that's happening, happening in the grid, whether you're an industrial plant with generation at the plant, you're still going to have a utility tie. And then all this transformation, what if, what if in ten years every home had some level of EV charger? The demand on the grid for bi directional flow of electrical power is going to create a whole new tomorrow. And that's the space we're in. So one of the things we're doing at Powell is to think about the core, which is still the industrial project that we grew up knowing how to do, what our culture is centered around, but asking what else can we do? Or could we be with this change over the next five to 15 years? So if you think about Powell being a medium and low voltage distribution company and just saying, look as opposed to just being an industrial. A lot of people do correlate because obviously, a fair amount of our revenues are still tied to the industrial market. But we understand electrical distribution. So it is an on off switch between the generating source turbine, that's natural gas, or it's solar or wind or battery. That flow of energy makes its way to bulk power transmission, whether that's a utility, high voltage transmission, or in your neighborhood or at an industrial plant. So it goes through a distribution device yard solution. So I think there's an area for Powell for the future. And the other end, when you transmit that power to a point of use again, we know the industrial facility or refinery or a chemical plant very well, but you have to then kind of like your home or your business, you go through a circuit panel and you distribute the power back out to its individual circuits. That's another area for distribution. So either side of transmission. So we're reframing the company to think about Powell as a distribution solutions company to attack and solve tomorrow's distribution needs on a quickly changing electrical landscape. So I'm very excited for the future, for our company and what that means.
[00:09:13] Speaker B: Yeah, that's fascinating. So, Brett, we're going to talk now about your amazing career that you've had in the electrical automation space. Talk us through your journey about becoming CEO of Powell Industries.
[00:09:27] Speaker C: So I had a great start at multinational company for 20 years of my career. Learned a lot about technology, got a chance to travel around the world, see the world. I started as an engineer coming out of Miami of Ohio. I wanted to be the world's best engineer to go out and solve problems. I was really into automation. I am still today pretty jazzed around robotics and taking computers to control things to make life better. I think that was what really drove me in my early years. I got lured into the marketing sales side within the three, four years of starting at ABB, and that opened up a whole new future for me. I never thought I'd be on that front, that side of the business, but that started a journey that really took me. Started moving around quite a few different locations with the family and the switch to apow. It was a case of either, you know, with Abb being multinational, I was ready to either go out in the world and move internationally and be an expat and tackle that, that next phase. It was pretty exciting prospect with my wife and I, but having always been in the project side of Abb, I was always enjoying taking all the products that, that we made and going to a client and solving a problem. And so the opportunity when just before we were thinking about going overseas, talk with somebody, and early in my career, you could do your pros and cons list, and somebody said, at the end of the day, you can do all your lists, but all you have is your gut. Within 30 days of talking to folks at Powell, the fact that Powell's entire culture is built around solving solutions for customers, it was exactly in reflection, who I had been and really who I wanted to continue to be. So we moved over to Powell to take a great brand again, a North American, a different sort of management culture than I had grown up in, that wanted to take all its parts and represent the best of its brand to a client. I enjoyed the challenge. I came over to Powell at the time that there was the first non Powell family member was running the company. And I think looking back, it sort of played out over the last ten years that that was a challenge for the company to figure out a match between the leader and the culture. I'm very fortunate to have had the opportunity to step into the role, to have Tom's support, the board support, to have bonded with the culture over the last ten years of the company. I'm still in a very steep learning curve, and every day is a challenge. I'm really, as I already noted, looking forward to the next ten years of the company. I absolutely believe we're in a unique spot, especially in the Ansi electrical market. Even though we play globally, the transformation that's happening right now is, for me, I feel like it's Powell's ability to. The faster we can run, the faster we'll see the results for the company and for our shareholders.
[00:12:03] Speaker B: That's a great story. So, like I mentioned before, Powell's weathered many storms since you've joined the company. Tell us, how did your experiences in the electrical industry prepare you for that, especially while being in the hot seat as the CEO?
[00:12:18] Speaker C: Yeah, well, as we kind of already covered, I feel like there's three hot seats in global challenges. I mean, I was participative, right, in the leadership team when I first joined Powell. And I do think the work we put into the process and the people has really done well to prepare us for these. Powell has a rich history of overcoming a lot of adversity to when a client comes, we respond very quickly, whether it's on a project or modifying a product or developing a new product, Powell has a rich history of delivering quickly on that, and that's a strength of our culture. But the scale, that's where I really feel the process is a key part that really underpins that ability to grow and to do new things on a wider scale. So our challenge now is to fight from our strength. I want to continue to foster a culture that embraces our 1st 75 years to really be able to deliver those very difficult projects, because I absolutely believe nobody can do them. Like Powell, we can take the most complex of projects and take them apart, understand how to deliver efficiently and safely and successfully. In my 1st 20 years, I can't tell you that's always the case. It's not easy. I sometimes tell people projects are not for the light of heart. They're long. We're a very long cycle business. Our challenge now is to add to the portfolio Powell, and to grab the transformation that we just talked about.
[00:13:31] Speaker B: As you've mentioned, PAL Industries is obviously very proud of its core values. Customer first, respect for employees, continuous improvement, and a can do attitude to solve your customers toughest problems. As a leader, how do you set the right tone so those values get ingrained throughout the entire organization?
[00:13:51] Speaker C: Well, I think you have to always enjoy the 360 review at any position. Certainly as a CEO, I get a lot of feedback and I invite it. I think folks would tell you I lead from the front. I have absolutely grabbed those core tenets that the Powell family built into the culture.
[00:14:08] Speaker B: I love them.
[00:14:09] Speaker C: I love the can do spirit of, I love that customers are first because I believe they are the lifeblood of any company and they certainly are here at Powell. So I think that being out front and making sure that everything we do, whether it's just the short term engagements that I have through any review or being present with our teams and an operational view, or having opportunity with the client to demonstrate that, but then go back to processes, having code of business conduct to take the tenants, to put them in the process side of, look, we're going to compete ethically and fairly. So we challenge our teams to train and talk about what that means and why we need to do, because they are really rooted in what the Powell family started and why that's important tomorrow for the things that we aspire to do. And then ultimately out of that comes accountability. And so once you get the process, the structure, while you're still embodying the four core tenants, then the one that comes out of that is leadership and accountability. How do we, once we understand what the risk management is and how do we do things well, how can we take a step forward to expansion without leaders are going to step up and take those tenants and be accountable to them. And that's really where we're at today as a company.
[00:15:19] Speaker B: So, Brett, I'd like to switch topics now. At Fernway, we have observed that companies exposed to cyclical markets find it challenging to sustainably drive performance improvement, margin expansion. How do you manage that at Powell Industries?
[00:15:37] Speaker C: Well, we're in that. We've not yet. I can't claim victory. We are a cyclical company, and on the downturn, we talk a lot in the market about, because we have so much knowledge, whether we've institutionalized it through process, and still a fair amount of tribal knowledge on the downturn for a company like Powell. While you might make adjustments, the people that make up our company, our everything. And so you are resisting taking out folks fixed cost reductions because you're preparing for when the market turns, and so you get margin compression on the upside. I do think we're much better today. You add resources and you're trying to leverage in order to expand margins. So we've not solved that problem. We recognize that. We think we're better at it, as I kind of alluded to today already, but preparing for tomorrow. If you look at the five years, Tom Powell, who has given me a lot of mentoring and coaching and still will for many years to come, has just come off our board last week. So it's the first time in our 75 years history we haven't had a family member tied to the company in this progress to this point. We started talking at the board level. We refreshed the talent. We've engaged with management team, between the board and talent and management team, as well as throughout the, all the teams of the company to talk about the transformation that needs to happen again. It's not to change the DNA, but how does Powell either create an alternate organization, how do we step out of what we know how to do, reframe it in that distribution, whether it's on from the generating side into transmission or from the transmission out to whatever, how do we take advantage of what we know how to do and be more relevant for the transition, for the global acceleration of the grid challenges of tomorrow? And I think that when we look into our culture and things that we can do and who we could be in addition to who we are today, that's the challenge for the next three to five years. For Powell, I believe there's a lot of upside in the switchgear side, both LV and MV, in the world that we compete in. There's primary switchgear, there's secondary switchgear, there's a lot of other things that are tangential to what we do. That wouldn't be largest up, but they will challenge the culture and it will take a new way of managing the products and solutions in those markets in order to be successful and add to the portfolio of the company.
[00:17:48] Speaker B: And so your competitors are some big names like Abb, Eaton, Schneider, Siemens, GE.
How has PaL Industries, being a sub $1 billion company, position itself for success surrounded by such a competitive landscape?
[00:18:04] Speaker C: On the core of our business, the ETO, the engineer to order distribution, solution breaker, a switchgear or a very large building that we make for power control, where we put all the elements of distribution into a modular substation and then ship that to the client site. The first step of that is to, because of the complexity, because of the length and the cycle, to make sure that that's always a strength. We can't lose our ability to be recognized by clients as the best. It is what Powell's 1st 75 years is all about. We have to never lose that trust that when you need, when budget's everything and you're worried about timeframe and you need the solution, there's nobody better than Powell. And that's how we fundamentally go to market and beat large multinational companies. They certainly have the depth and breadth to challenge us in various market segments or geographies. But knowing where we compete, that's the first step. As we think about the future and some of the things I just talked about, we have to be cognizant of where we think we can make progress. Culture is important. There's a lot of books and thought leadership around culture, and we talk about that very openly and transparently about that next phase of Powell. As to how can we move the culture forward in order to take advantage of these opportunities that are quickly changing and have people participate in that and that it's not a fearful thing to add to the company. But how do we, again, accountability and excitement to drive that forward and show the opportunity to win and let people rise up to the challenge? It is a challenge. I'm learning a lot, as I mentioned at the outset, and this is a big, big opportunity for the company. And it's going to take the entire village of Powell here to move the needle. But I think we have it within us.
[00:19:45] Speaker B: So Brett, another thing we've observed while working with sub $1 billion industrial companies is that they find it challenging to attract top notch talent. How have you addressed that? And based on that, what would your advice be to such companies?
[00:19:59] Speaker C: The war for talented it is a challenge. I think today we're living through. That's another outcome of the pandemic, the great resignation that people talk about, people reevaluating purpose. It is definitely something we see. I just talked about it in our recent quarterly call. We've not been immune from it. It hasn't hit us overly hard. I think there is sub $1 billion companies, and this is something we talk about where I grew up, a large, very large company, and they have brand recognition, brand management, and strength of culture. It's not to say they don't, but coming to Powell, the culture is very, even though we're public company and there's much more of a family feeling that you might have coming to a company the size of Powell and that we're all common in the mission. So when we go to a client and fight our way, either an existing client or fight for a new business, into a new space or a new client, it's a team effort across the company, and we don't let barriers stand in the way. We're quick to remove barriers if they happen to crop up. And I think that folks that want to be part of that mission, and I think that's where we do win talent, when people find that that's an exciting part of what they want to be part of. I think our challenge for tomorrow in talking about technology and intellectual property, I mean, fundamentally, we're a manufacturer. I believe that one of the key elements of success will be IP intellectual property. So while Powell has a rich history of inventing and developing with clients, in order to be successful tomorrow, we've got to attract that talented to powell to make a difference in all the things that we want to invent or develop successfully to underpin the next stage of the company. And so that's something we're talking about today. Where and how do we attract that talent to ensure that we remain viable as a north american public manufacturer of electrical switch gear, whereas most of our competitors have offshored, we'll find a way. There's a lot of things already in process. We've done a lot of cost out on an existing product, and we brought some really innovative products to market. And what we're looking to do now is accelerate that in what we think is a huge transformation, again, especially in this anti north american market.
[00:22:07] Speaker B: Well, in closing, Brett, what's your view on the outlook for the electrical energy industry? I mean, if you had a crystal ball, where do you think the industry will be three to five years from now?
[00:22:19] Speaker C: Bret, it's going to be different I mean, I don't think we're going to get rid of oil and gas. I know that's sort of unpopular to talk about, but we, I mean, the world is based on the hydrocarbon economy. Clearly there's going to be a lot more, even though there's been a lot of work done on renewables, on wind and solar, I think the storage side of that equation is going to be radically different in the next three to five years. How are batteries going to play? Batteries are a tough business. I don't foresee Powell getting into, say, manufacturing batteries, but whether wherever you are in the energy chain, batteries are going to play a part. And so storing energy on the AC side or the DC side of electrical energy, the renewables are only going to continue to be a larger part. But hydrocarbons aren't going to go away. Natural gas is going to continue to play a very big role in the global energy economy. I mean, it is actually helping carbon reduction goals. So I think that's going to continue to play a big part in the global economy, whether that's on the generating side for utility or into a chemical gas to chemical conversion, make fertilizer products for agriculture. I think you're going to see a sustained energy from the global population on this EV transition. What does that really mean? Well, we all have micro generation in our neighborhoods. I don't know. I think the economics are going to sort of maybe temper a little bit some of these initiatives, but they're not going to go away. I think it's the right thing to do for the world. It's the right thing to do for an individual and for the economy. But I think we'll see a little balance on what is that mix over time, because at the end of the day, whatever the grid looks like tomorrow, I think fundamentally people want it safe, you want it reliable. You certainly don't want the lights going out in the middle of the afternoon or in the middle of the night. And while we all accomplish global goals for a better tomorrow, so it's going to be a fun journey. And as I noted already today, I think Powell is a great bet for the future. There's a lot of people, there's 1900 people here that we talk about these types of things every day, and they're all charged up to make a difference.
[00:24:13] Speaker B: Well, that's great. Thank you for joining us and sharing your perspectives. I think our listeners will really benefit from listening to your story and excited for Powell in their future.
[00:24:26] Speaker C: Thanks, Dan.
[00:24:27] Speaker B: You are welcome.
[00:24:28] Speaker C: Appreciate the opportunity.
[00:24:35] Speaker A: Thanks for listening to Fernway Insights. Please visit fernway.com for more podcasts, publications, and events on developments shaping the industrial and industrial tech sector.