Third Quarter Fiscal 2024 PRESENTATION Results Safe Harbor Statement All statements in this presentation that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by words such as "believe," "intend," "expect," "may," "could," "would," "will," "should," "plan," "project," "contemplate," "anticipate," or similar statements. Because these statements reflect the current views of Argan, Inc. ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) Delaware 13-1947195 (State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identification No.) One Church Street, Suite 201, Rockville, Maryland 20850 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended October 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT For the Transition Period from to Com ...

Argan, Inc. (NYSE:AGX) Q2 2024 Earnings Conference Call September 1, 2023 5:00 PM ET Company Participants John Nesbett - IMS Investor Relations David Watson - Chief Executive Officer Hank Deily - Chief Financial Officer Conference Call Participants Rob Brown - Lake Street Markets Chris Moore - CJS Securities Operator Good evening, ladies and gentlemen, and welcome to the Argan, Inc. [Technical Difficulty] Conference Call for the Second Quarter of Fiscal 2024, which ended July 31, 2023. This call is being re ...

FORM 10-Q Cover Page [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides key identifying information for Argan, Inc., including its state of incorporation, principal executive offices, and status as an accelerated filer. It also details the common stock listing and shares outstanding - Argan, Inc. is a Delaware corporation with its principal executive offices in Rockville, Maryland[2](index=2&type=chunk) - The company is classified as an 'accelerated filer' and is not a 'shell company'[3](index=3&type=chunk) Metric | Value | :-------------------------- | :-------------------- | | Common Stock Trading Symbol | AGX | | Exchange Listed On | New York Stock Exchange | | Shares Outstanding (Sep 1, 2023) | 13,318,653 shares | Part I. Financial Information [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Argan, Inc. and its subsidiaries for the periods ended July 31, 2023, and 2022, including statements of earnings, balance sheets, stockholders' equity, and cash flows, along with comprehensive notes [Condensed Consolidated Statements of Earnings](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) The Condensed Consolidated Statements of Earnings provide a summary of the company's financial performance for the three and six months ended July 31, 2023, compared to the same periods in 2022, highlighting significant increases in net income and diluted EPS Three Months Ended July 31 (in thousands, except per share data): | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | $141,349 | $118,110 | $23,239 | 19.7% | | Gross Profit | $23,742 | $24,387 | $(645) | -2.6% | | Income from Operations | $13,241 | $13,403 | $(162) | -1.2% | | Net Income | $12,767 | $4,222 | $8,545 | 202.4% | | Diluted EPS | $0.94 | $0.30 | $0.64 | 213.3% | Six Months Ended July 31 (in thousands, except per share data): | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | $245,024 | $218,387 | $26,637 | 12.2% | | Gross Profit | $37,966 | $44,125 | $(6,159) | -14.0% | | Income from Operations | $16,874 | $22,566 | $(5,692) | -25.2% | | Net Income | $14,876 | $11,707 | $3,169 | 27.1% | | Diluted EPS | $1.10 | $0.80 | $0.30 | 37.5% | [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets present the company's financial position as of July 31, 2023, and January 31, 2023, showing an increase in total assets and stockholders' equity, alongside a rise in total liabilities Balance Sheet Highlights (in thousands): | Metric | July 31, 2023 | January 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :-------------- | :--------------- | :--------- | :--------- | | Total Current Assets | $455,132 | $438,702 | $16,430 | 3.7% | | Total Assets | $505,708 | $489,487 | $16,221 | 3.3% | | Total Current Liabilities | $215,606 | $202,503 | $13,103 | 6.5% | | Total Liabilities | $220,672 | $208,590 | $12,082 | 5.8% | | Total Stockholders' Equity | $285,036 | $280,897 | $4,139 | 1.5% | [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This statement outlines the changes in stockholders' equity for the three and six months ended July 31, 2023, and 2022, reflecting the impact of net income, stock compensation, share repurchases, and cash dividends Stockholders' Equity Changes (Six Months Ended July 31, 2023, in thousands): | Item | Amount | | :------------------------------------------ | :------- | | Balances, February 1, 2023 | $280,897 | | Net income | $14,876 | | Foreign currency translation gain | $255 | | Net unrealized losses on available-for-sale securities | $(720) | | Stock compensation expense | $2,218 | | Stock option exercises and other share-based award settlements | $947 | | Common stock repurchases | $(6,738) | | Cash dividends | $(6,699) | | Balances, July 31, 2023 | $285,036 | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows detail the cash generated from or used in operating, investing, and financing activities for the six months ended July 31, 2023, and 2022, showing a significant net increase in cash and cash equivalents in 2023 Cash Flow Summary (Six Months Ended July 31, in thousands): | Activity | 2023 | 2022 | Change ($) | | :------------------------------------ | :------- | :-------- | :--------- | | Net cash provided by (used in) operating activities | $34,553 | $(56,776) | $91,329 | | Net cash provided by (used in) investing activities | $8,458 | $(85,638) | $94,096 | | Net cash used in financing activities | $(12,490) | $(60,294) | $47,804 | | Net increase (decrease) in cash and cash equivalents | $30,852 | $(207,128) | $237,980 | | Cash and cash equivalents, end of period | $204,799 | $143,344 | $61,455 | [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business description, accounting policies, revenue recognition, investments, commitments, stock-based compensation, income taxes, and segment reporting [NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION](index=6&type=section&id=NOTE%201%20%E2%80%93%20DESCRIPTION%20OF%20THE%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) This note outlines Argan, Inc.'s operational structure through its subsidiaries, detailing its business segments in power industry services, industrial construction, and telecommunications infrastructure. It also covers the basis of financial statement presentation, significant accounting policies, and recent accounting pronouncements - Argan, Inc. operates through wholly-owned subsidiaries: Gemma Power Systems (GPS), The Roberts Company (TRC), Atlantic Projects Company (APC), and Southern Maryland Cable (SMC)[16](index=16&type=chunk) - Business segments include Power Industry Services (GPS & APC), Industrial Construction Services (TRC), and Telecommunications Infrastructure Services (SMC)[16](index=16&type=chunk) - The condensed consolidated financial statements are unaudited for interim periods and prepared under SEC rules, to be read in conjunction with the annual Form 10-K[18](index=18&type=chunk) - FASB issued ASU 2023-02 for tax equity investments, effective for fiscal years beginning after December 15, 2023; the Company's prior investments do not qualify[20](index=20&type=chunk) - Available-for-sale (AFS) securities are recorded at fair value, with unrealized gains and losses reported in accumulated other comprehensive loss. U.S. Treasury notes are classified as Level 2 in the fair value hierarchy[22](index=22&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk) [NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS](index=8&type=section&id=NOTE%202%20%E2%80%93%20REVENUES%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) This note details the Company's revenue recognition practices, which follow a five-step model for long-term construction contracts, primarily recognized over time. It also provides insights into contract assets, liabilities, retentions, variable consideration, and the disaggregation of revenues by geographic area - The Company recognizes revenues primarily from fixed-price and time-and-materials long-term construction contracts over time, based on costs incurred and estimated total contract costs[27](index=27&type=chunk)[28](index=28&type=chunk) Revenues Recognized from Contract Liabilities (in millions): | Period | Amount | | :------------------------------------------ | :------- | | Six months ended July 31, 2023 | ~$87.0 | | Six months ended July 31, 2022 | ~$127.6 | | Three months ended July 31, 2023 | ~$64.7 | | Three months ended July 31, 2022 | ~$83.2 | Contract Retentions by Customers (in millions): | Date | Amount | | :---------------- | :------- | | July 31, 2023 | $28.1 | | January 31, 2023 | $49.1 | - Unapproved change orders included in transaction prices, pending customer approval, were **$12.8 million** at July 31, 2023, and **$11.6 million** at January 31, 2023[35](index=35&type=chunk) - Remaining Unsatisfied Performance Obligations (RUPO) totaled **$0.7 billion** at July 31, 2023, with approximately **37%** expected to be recognized in revenues during the remainder of Fiscal 2024[41](index=41&type=chunk) Consolidated Revenues Disaggregated by Geographic Area (in thousands): | Geographic Area | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $80,281 | $93,949 | $147,800 | $174,221 | | Republic of Ireland | $48,075 | $15,532 | $70,656 | $25,186 | | United Kingdom | $12,993 | $8,629 | $26,568 | $18,980 | | **Total** | **$141,349** | **$118,110** | **$245,024** | **$218,387** | [NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS](index=11&type=section&id=NOTE%203%20%E2%80%93%20CASH,%20CASH%20EQUIVALENTS%20AND%20INVESTMENTS) This note details the Company's cash, cash equivalents, and investment portfolio, which includes short-term certificates of deposit (CDs) and available-for-sale (AFS) U.S. Treasury notes. It also addresses the concentration risk associated with these holdings - Cash and cash equivalents include investments in a money market fund, with accrued dividends of **$0.6 million** at July 31, 2023, up from **$0.3 million** at January 31, 2023[44](index=44&type=chunk) Total Investments (in thousands): | Type | July 31, 2023 | January 31, 2023 | | :---------------------- | :-------------- | :--------------- | | Short-term investments | $81,624 | $151,511 | | Available-for-sale securities | $59,992 | — | | **Total investments** | **$141,616** | **$151,511** | - Short-term investments, primarily CDs, saw their weighted average annual interest rates increase from **2.5%** at January 31, 2023, to **5.3%** at July 31, 2023[46](index=46&type=chunk) - AFS securities, consisting of U.S. Treasury notes, had net unrealized holding losses of approximately **$0.7 million** for both the three and six months ended July 31, 2023, reported in other comprehensive income[47](index=47&type=chunk) - The Company maintains substantial cash and investments with Bank of America and in money market funds, but management does not believe this concentration represents material risks[48](index=48&type=chunk) [NOTE 4 – ACCOUNTS RECEIVABLE](index=12&type=section&id=NOTE%204%20%E2%80%93%20ACCOUNTS%20RECEIVABLE) This note describes the Company's policy for extending credit to customers and its approach to monitoring and providing for credit losses on accounts receivable - The allowance for credit losses was **$1.8 million** at July 31, 2023, a slight decrease from **$1.9 million** at January 31, 2023. Provisions for credit losses were insignificant for the periods presented[49](index=49&type=chunk) [NOTE 5 – INTANGIBLE ASSETS](index=12&type=section&id=NOTE%205%20%E2%80%93%20INTANGIBLE%20ASSETS) This note provides a breakdown of the Company's goodwill and other intangible assets, primarily associated with its industrial construction services segment - Goodwill balances remained consistent at **$18.5 million** for GPS and **$9.5 million** for TRC at both July 31, 2023, and January 31, 2023[50](index=50&type=chunk) Intangible Assets, Other Than Goodwill (July 31, 2023, in thousands): | Asset Type | Estimated Useful Life | Gross Amounts | Accumulated Amortization | Net | | :-------------------- | :-------------------- | :------------ | :----------------------- | :---- | | Trade names | 15 years | $4,499 | $2,300 | $2,199 | | Customer relationships | 10 years | $916 | $702 | $214 | | **Totals** | | **$5,415** | **$3,002** | **$2,413** | [NOTE 6 – FINANCING ARRANGEMENTS](index=12&type=section&id=NOTE%206%20%E2%80%93%20FINANCING%20ARRANGEMENTS) This note details the Company's Credit Agreement with Bank of America, including its recent amendment to update interest pricing, its borrowing capacity, and the Company's compliance with financial covenants - The Credit Agreement was amended on March 6, 2023, to replace interest pricing with SOFR plus **1.6%** and extend the expiration date to May 31, 2024[52](index=52&type=chunk) - The agreement provides a **$50.0 million** lending commitment, including a revolving loan and a **$10.0 million** accordion feature[52](index=52&type=chunk) - No borrowings were outstanding under the Credit Agreement at July 31, 2023, or January 31, 2023, but letters of credit totaled **$9.4 million** at July 31, 2023[53](index=53&type=chunk) - The Company was in compliance with all financial covenants of the amended Credit Agreement as of July 31, 2023, and January 31, 2023[54](index=54&type=chunk) [NOTE 7 – COMMITMENTS](index=13&type=section&id=NOTE%207%20%E2%80%93%20COMMITMENTS) This note outlines the Company's various commitments, including operating leases for office space and equipment, performance bonds and guarantees for projects, and assurance-type warranties on construction contracts - Operating lease right-of-use assets were **$4.5 million** at July 31, 2023, and **$4.8 million** at January 31, 2023. Operating lease expense for the six months ended July 31, 2023, was **$0.9 million**[56](index=56&type=chunk)[57](index=57&type=chunk) Future Minimum Lease Payments for Operating Leases (as of July 31, 2023, in thousands): | Years Ending January 31, | Amount | | :----------------------- | :----- | | 2024 (remainder) | $879 | | 2025 | $1,470 | | 2026 | $1,194 | | 2027 | $276 | | 2028 | $221 | | Thereafter | $817 | | **Total lease payments** | **$4,857** | - Rent expense for short-term rentals increased to **$6.8 million** for the six months ended July 31, 2023, from **$5.3 million** in the prior year period[59](index=59&type=chunk) - Estimated unsatisfied bonded performance obligations were approximately **$0.5 billion** at July 31, 2023, down from **$0.6 billion** at January 31, 2023[61](index=61&type=chunk) - The Company provides assurance-type warranties for construction contracts, typically **9 to 24 months**, with costs estimated and accrued as work is performed[63](index=63&type=chunk) [NOTE 8 – LEGAL CONTINGENCIES](index=14&type=section&id=NOTE%208%20%E2%80%93%20LEGAL%20CONTINGENCIES) This note states management's assessment that no current legal claims or proceedings are expected to have a material adverse effect on the Company's condensed consolidated financial statements - Management believes that current claims and legal proceedings are not expected to have a material adverse effect on the condensed consolidated financial statements as of July 31, 2023[64](index=64&type=chunk) [NOTE 9 – STOCK-BASED COMPENSATION](index=14&type=section&id=NOTE%209%20%E2%80%93%20STOCK-BASED%20COMPENSATION) This note details the Company's stock-based compensation plans, including stock options and restricted stock units, and provides a summary of activity and related compensation expenses for the periods presented - The 2020 Stock Plan, approved in June 2020, had an additional **500,000 shares** allocated in June 2023, with **586,225 shares** available for future awards as of July 31, 2023[65](index=65&type=chunk)[67](index=67&type=chunk) Stock Option Activity (Six Months Ended July 31, 2023, shares in thousands): | Item | Shares | Weighted Average Exercise Price Per Share | | :-------------------------- | :----- | :-------------------------------- | | Outstanding, February 1, 2023 | 1,440 | $43.84 | | Granted | 10 | $39.47 | | Exercised | (45) | $21.04 | | Forfeited | (1) | $33.81 | | **Outstanding, July 31, 2023** | **1,404** | **$44.55** | | Exercisable, July 31, 2023 | 1,276 | $45.01 | - Restricted stock units (RSUs) awarded during the six months ended July 31, 2023, included performance-based (PRSUs, EPRSUs, RPRSUs) and time-based (TRSUs) units, totaling **73,854 target shares**[71](index=71&type=chunk) - Stock compensation expense was **$2.2 million** for the six months ended July 31, 2023, with **$7.2 million** in unrecognized compensation cost expected to be expensed over the next three years[73](index=73&type=chunk) [NOTE 10 – INCOME TAXES](index=17&type=section&id=NOTE%2010%20%E2%80%93%20INCOME%20TAXES) This note provides a reconciliation of income tax expense, discusses the status of Net Operating Loss (NOL) carryback refunds, Research and Development (R&D) tax credits, and investments in solar energy projects Income Tax Expense Reconciliation (Six Months Ended July 31, in thousands): | Item | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Computed expected income tax expense (21%) | $4,276 | $4,970 | | State income taxes, net of federal tax effect | $455 | $349 | | Unrecognized tax loss benefit | $529 | — | | GILTI | $505 | $225 | | Excess executive compensation | $400 | $445 | | Foreign tax rate differential | $(643) | $(120) | | Tax credits | $(453) | $(124) | | Research and development credits adjustment | — | $6,181 | | Other permanent differences and adjustments, net | $418 | $33 | | **Income tax expense** | **$5,487** | **$11,959** | - The Company filed for approximately **$12.7 million** in NOL carryback refunds for Fiscal 2015 and 2016 under the CARES Act, with IRS review and approval still pending[79](index=79&type=chunk) - Amended federal income tax returns for Fiscal 2021 and 2022 were filed to include **$5.8 million** in R&D tax credits, offset by a **$2.4 million** provision for uncertain tax positions[80](index=80&type=chunk) - Income tax refunds receivable and prepaid income taxes totaled **$16.9 million** at July 31, 2023, and **$15.3 million** at January 31, 2023[81](index=81&type=chunk) - Investments in solar energy projects, accounted for using the equity method, had balances of **$1.1 million** at July 31, 2023, and **$1.2 million** at January 31, 2023[83](index=83&type=chunk) [NOTE 11 – NET INCOME PER SHARE](index=18&type=section&id=NOTE%2011%20%E2%80%93%20NET%20INCOME%20PER%20SHARE) This note presents the calculation of basic and diluted net income per share for the three and six months ended July 31, 2023, and 2022 Net Income Per Share (Three Months Ended July 31): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Basic EPS | $0.95 | $0.30 | | Diluted EPS | $0.94 | $0.30 | Net Income Per Share (Six Months Ended July 31): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Basic EPS | $1.11 | $0.81 | | Diluted EPS | $1.10 | $0.80 | [NOTE 12 – CASH DIVIDENDS AND TREASURY STOCK](index=19&type=section&id=NOTE%2012%20%E2%80%93%20CASH%20DIVIDENDS%20AND%20TREASURY%20STOCK) This note reports on the cash dividends declared and the common stock repurchases executed by the Company during the periods, including the impact of the new excise tax on repurchases - Argan's board of directors declared regular quarterly cash dividends of **$0.25 per share** in April and June 2023, both paid in the second quarter[89](index=89&type=chunk) Common Stock Repurchases (Six Months Ended July 31): | Year | Shares Repurchased | Aggregate Price (in millions) | Average Price Per Share | | :--- | :----------------- | :---------------------------- | :---------------------- | | 2023 | 169,788 | $6.7 | $39.45 | | 2022 | 1,412,592 | $53.2 | $37.64 | - The **1%** excise tax on share repurchases, effective after December 31, 2022, was not material for the six months ended July 31, 2023[91](index=91&type=chunk) [NOTE 13 – CUSTOMER CONCENTRATIONS](index=19&type=section&id=NOTE%2013%20%E2%80%93%20CUSTOMER%20CONCENTRATIONS) This note highlights the Company's reliance on a few significant customers and the concentration of revenues, accounts receivable, and contract assets within its power industry services segment - The power industry services segment generated **75%** and **72%** of consolidated revenues for the three and six months ended July 31, 2023, respectively[92](index=92&type=chunk) - For the three months ended July 31, 2023, three power industry service customers accounted for **21%**, **20%**, and **12%** of consolidated revenues[93](index=93&type=chunk) - At July 31, 2023, three major customers represented **35%**, **15%**, and **10%** of consolidated accounts receivable, and **30%**, **15%**, and **13%** of consolidated contract assets[94](index=94&type=chunk) [NOTE 14 – SEGMENT REPORTING](index=20&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20REPORTING) This note provides disaggregated financial data for the Company's three reportable segments: Power Industry Services, Industrial Construction Services, and Telecommunications Infrastructure Services, detailing their revenues, gross profit, and operational results Segment Revenues and Gross Profit (Three Months Ended July 31, 2023, in thousands): | Segment | Revenues | Gross Profit | Gross Profit % | | :-------------------------------- | :------- | :----------- | :------------- | | Power Industry Services | $105,345 | $18,251 | 17.3% | | Industrial Construction Services | $32,756 | $4,680 | 14.3% | | Telecommunications Infrastructure Services | $3,248 | $811 | 25.0% | | **Consolidated Totals** | **$141,349** | **$23,742** | **16.8%** | Segment Revenues and Gross Profit (Six Months Ended July 31, 2023, in thousands): | Segment | Revenues | Gross Profit | Gross Profit % | | :-------------------------------- | :------- | :----------- | :------------- | | Power Industry Services | $175,521 | $28,092 | 16.0% | | Industrial Construction Services | $63,063 | $8,425 | 13.4% | | Telecommunications Infrastructure Services | $6,440 | $1,449 | 22.5% | | **Consolidated Totals** | **$245,024** | **$37,966** | **15.5%** | [NOTE 15 – SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION](index=22&type=section&id=NOTE%2015%20%E2%80%93%20SUPPLEMENTAL%20FINANCIAL%20STATEMENT%20INFORMATION) This note provides additional details on the composition of other current assets and accrued expenses, and discloses a wire-transfer fraud incident and its financial impact Other Current Assets (in thousands): | Item | July 31, 2023 | January 31, 2023 | | :------------------------------------------ | :-------------- | :--------------- | | Income tax refunds receivable and prepaid income taxes | $16,895 | $15,327 | | Raw materials inventory | $12,836 | $11,903 | | Prepaid expenses | $6,848 | $4,541 | | Other | $6,859 | $6,563 | | **Total other current assets** | **$43,438** | **$38,334** | Accrued Expenses (in thousands): | Item | July 31, 2023 | January 31, 2023 | | :-------------------- | :-------------- | :--------------- | | Accrued compensation | $13,085 | $18,286 | | Accrued project costs | $43,995 | $17,448 | | Lease liabilities | $1,535 | $1,567 | | Other | $9,005 | $12,566 | | **Total accrued expenses** | **$67,620** | **$49,867** | - The Company incurred a **$3.0 million** wire-transfer fraud loss in March 2023, with **$0.4 million** recovered by July 31, 2023. The net loss of approximately **$2.8 million** (including professional fees) is reflected in other income, net[100](index=100&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance and condition, offering a detailed analysis of operating results, market outlook, liquidity, and critical accounting policies for the periods presented - The discussion summarizes the financial position as of July 31, 2023, and operating results for the three and six months ended July 31, 2023 and 2022, to be read with the unaudited financial statements and the annual 10-K[101](index=101&type=chunk)[102](index=102&type=chunk) [Cautionary Statement Regarding Forward Looking Statements](index=23&type=section&id=Cautionary%20Statement%20Regarding%20Forward%20Looking%20Statements) This statement advises readers that forward-looking statements in the report involve inherent risks and uncertainties, and actual results may differ materially from projections. The Company disclaims any obligation to publicly update or revise these statements - Forward-looking statements are based on current expectations and beliefs but involve significant risks and uncertainties that could cause actual results to vary materially[104](index=104&type=chunk)[105](index=105&type=chunk) - The Company undertakes no obligation to publicly update or revise any forward-looking statements[105](index=105&type=chunk) [Business Description](index=23&type=section&id=Business%20Description) This section reiterates the Company's core business as a construction firm operating through its subsidiaries, providing services in power generation, industrial construction, and telecommunications infrastructure, with a focus on opportunistic acquisitions for profitable growth - Argan is primarily a construction firm operating through GPS, APC (power industry services), TRC (industrial construction services), and SMC (telecommunications infrastructure services)[106](index=106&type=chunk) - The Company seeks opportunistic acquisitions and investments in companies with potential for profitable growth and synergies, with a flexible industrial focus[107](index=107&type=chunk) [Overview](index=23&type=section&id=Overview) This overview summarizes the Company's consolidated operating results for the three and six months ended July 31, 2023 and 2022, highlighting revenue growth, gross profit trends, and net income performance, along with an update on project backlog and key project milestones Consolidated Operating Results (in millions): | Metric | 3 Months Ended July 31, 2023 | 3 Months Ended July 31, 2022 | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $141.3 | $118.1 | $245.0 | $218.4 | | Gross Profit | $23.7 (16.8%) | $24.4 (20.6%) | $38.0 (15.5%) | $44.1 (20.2%) | | Net Income | $12.8 | $4.2 | $14.9 | $11.7 | | Diluted EPS | $0.94 | $0.30 | $1.10 | $0.80 | - Consolidated revenues increased by **19.7%** for the three months and **12.2%** for the six months ended July 31, 2023, driven by growth in power industry and industrial construction services[108](index=108&type=chunk)[112](index=112&type=chunk) - Project backlog remained stable at **$0.8 billion** as of July 31, 2023, primarily from the power industry services segment[118](index=118&type=chunk) - Key projects nearing completion include the Guernsey Power Station and Maple Hill Solar facility, while new projects like Trumbull Energy Center and Illinois solar and battery projects are underway or commencing[122](index=122&type=chunk)[123](index=123&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - APC's project backlog strengthened to approximately **$142 million**, including the Kilroot project in Northern Ireland and three FlexGen power plants in Ireland, with the Shannonbridge Project also receiving full notice to proceed[127](index=127&type=chunk)[128](index=128&type=chunk)[130](index=130&type=chunk) - TRC's project backlog increased by **135%** over the last twelve months to approximately **$140 million**, driven by larger industrial field service construction projects[131](index=131&type=chunk) [Market Outlook](index=26&type=section&id=Market%20Outlook) This section analyzes the evolving energy market, focusing on the transition from coal to natural gas and renewables, the impact of government policies like the IRA and EPA regulations, and challenges such as grid reliability and supply chain disruptions. It also highlights international opportunities in Ireland and the U.K. and the Company's strategic positioning - The U.S. electricity generation mix has shifted significantly, with coal declining from **45%** in 2010 to **20%** in 2022, while natural gas increased from **24%** to **39%** in the same period[133](index=133&type=chunk) - The Inflation Reduction Act (IRA) provides tax subsidies for renewables but includes 'buy American' and prevailing wage requirements that may strain supply chains and labor pools[135](index=135&type=chunk)[140](index=140&type=chunk) - New EPA rules proposed in May 2023 aim to drastically reduce greenhouse gases from coal- and gas-fired power plants, potentially costing **billions** for compliance by 2042[141](index=141&type=chunk) - PJM Interconnection and other grid operators warn of increasing reliability risks due to the rapid retirement of traditional power plants outpacing the construction of new renewable energy and battery storage facilities[148](index=148&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - Despite challenges, the Company believes demand for modern natural gas-fired power plants will persist due to lower operating costs, higher efficiencies, and grid resiliency needs, often with hydrogen-burning capabilities[158](index=158&type=chunk)[159](index=159&type=chunk)[161](index=161&type=chunk) - Overseas markets in Ireland and the U.K. offer significant new power construction opportunities, with governments recognizing the need for conventional generation (natural gas) to support intermittent renewables[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk)[167](index=167&type=chunk) [Comparison of the Results of Operations for the Three Months Ended July 31, 2023 and 2022](index=31&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20July%2031,%202023%20and%202022) This section provides a detailed comparison of the Company's operating results for the three months ended July 31, 2023, versus 2022, analyzing revenues, cost of revenues, gross profit, selling, general and administrative expenses, other income, and income taxes by segment Revenues by Segment (Three Months Ended July 31, in thousands): | Segment | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Power Industry Services | $105,345 | $91,327 | $14,018 | 15.3% | | Industrial Construction Services | $32,756 | $23,022 | $9,734 | 42.3% | | Telecommunications Infrastructure Services | $3,248 | $3,761 | $(513) | -13.6% | | **Total Revenues** | **$141,349** | **$118,110** | **$23,239** | **19.7%** | - Consolidated gross profit percentage decreased to **16.8%** in 2023 from **20.6%** in 2022, primarily due to changes in revenue mix and unfavorable profit adjustments on an APC project[183](index=183&type=chunk) - Other income, net, significantly increased to **$4.1 million** in 2023 from **$0.5 million** in 2022, mainly due to higher income from invested funds[186](index=186&type=chunk) - Income tax expense was **$4.6 million** (**26.5%** effective rate) in 2023, compared to **$9.7 million** in 2022, which included a **$6.2 million** unfavorable adjustment related to R&D credit claims[187](index=187&type=chunk) [Comparison of the Results of Operations for the Six Months Ended July 31, 2023 and 2022](index=33&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Six%20Months%20Ended%20July%2031,%202023%20and%202022) This section provides a detailed comparison of the Company's operating results for the six months ended July 31, 2023, versus 2022, analyzing revenues, cost of revenues, gross profit, selling, general and administrative expenses, other income, and income taxes by segment Revenues by Segment (Six Months Ended July 31, in thousands): | Segment | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Power Industry Services | $175,521 | $165,276 | $10,245 | 6.2% | | Industrial Construction Services | $63,063 | $45,523 | $17,540 | 38.5% | | Telecommunications Infrastructure Services | $6,440 | $7,588 | $(1,148) | -15.1% | | **Total Revenues** | **$245,024** | **$218,387** | **$26,637** | **12.2%** | - Consolidated gross profit percentage decreased to **15.5%** in 2023 from **20.2%** in 2022, primarily due to changes in revenue mix and unfavorable profit adjustments on an APC project[197](index=197&type=chunk) - Other income, net, increased to **$3.5 million** in 2023 from **$1.1 million** in 2022, reflecting higher investment returns (**$5.7 million**) partially offset by a **$3.0 million** wire-transfer fraud loss and related fees (net **$2.8 million** loss)[200](index=200&type=chunk) - Income tax expense was **$5.5 million** (**26.9%** effective rate) in 2023, compared to **$12.0 million** in 2022, which included a **$6.2 million** unfavorable adjustment related to R&D credit claims[202](index=202&type=chunk) [Liquidity and Capital Resources as of July 31, 2023](index=35&type=section&id=Liquidity%20and%20Capital%20Resources%20as%20of%20July%2031,%202023) This section analyzes the Company's liquidity and capital resources, detailing changes in cash and cash equivalents, cash flows from operating, investing, and financing activities, working capital, and the status of its credit facilities and commitments - Cash and cash equivalents increased by **$30.9 million** to **$204.8 million** at July 31, 2023, from **$173.9 million** at January 31, 2023[203](index=203&type=chunk) - Net cash provided by operating activities was **$34.6 million** for the six months ended July 31, 2023, a significant improvement from **$56.8 million** used in the prior year period[204](index=204&type=chunk)[209](index=209&type=chunk) - Net cash provided by investing activities was **$8.5 million**, primarily from net maturities of CDs (**$69.8 million**) partially offset by purchases of AFS U.S. Treasury notes (**$60.3 million**)[206](index=206&type=chunk) - Net cash used in financing activities was **$12.5 million**, including **$6.7 million** for stock repurchases and **$6.7 million** for dividends, partially offset by **$0.9 million** from stock option exercises[207](index=207&type=chunk) - Net liquidity (working capital) increased by **$3.3 million** to **$239.5 million** at July 31, 2023, from **$236.2 million** at January 31, 2023[212](index=212&type=chunk) - The Company has a **$50.0 million** revolving loan facility with no outstanding borrowings, but **$9.4 million** in letters of credit were issued. The Company was compliant with all financial covenants[213](index=213&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) [Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")](index=38&type=section&id=Earnings%20before%20Interest,%20Taxes,%20Depreciation%20and%20Amortization%20(%22EBITDA%22)) This section presents the calculation of EBITDA, a non-GAAP financial measure, for the three and six months ended July 31, 2023, and 2022, explaining its utility for assessing operating performance while cautioning against its use in isolation EBITDA (in thousands): | Period | 2023 | 2022 | | :-------------------------- | :------- | :------- | | Three Months Ended July 31 | $17,945 | $14,888 | | Six Months Ended July 31 | $21,594 | $25,621 | - EBITDA is presented as a meaningful non-GAAP measure to assess and compare operating performance by excluding the impacts of capital structure, depreciation, amortization, and income tax jurisdictions[226](index=226&type=chunk) - EBITDA should not be considered in isolation or as a substitute for GAAP results, nor does it necessarily represent funds available for discretionary use or ability to fund cash needs[227](index=227&type=chunk) [Critical Accounting Policies](index=38&type=section&id=Critical%20Accounting%20Policies) This section identifies the Company's critical accounting policies, which involve subjective judgments and estimates that can significantly impact financial results, and confirms no material changes in their application during the period - Critical accounting policies include revenue recognition on long-term construction contracts, income tax reporting, and financial reporting for significant claims or legal matters[230](index=230&type=chunk) - No material changes occurred in the application of these critical accounting policies during the six months ended July 31, 2023[230](index=230&type=chunk) [Recently Issued Accounting Pronouncements](index=39&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) This section notes the issuance of ASU 2023-02 related to investment tax credits and confirms that no other recently issued accounting pronouncements are considered material to the consolidated financial statements - Other than ASU 2023-02, related to accounting for investment tax credits, no other recently issued accounting pronouncements are believed to be material to the consolidated financial statements[232](index=232&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the Company's exposure to market risks, primarily from fluctuations in interest rates on its investable cash and commodity prices affecting fixed-price contracts, and also mentions foreign currency translation risk - The Company is subject to interest rate risk on its substantial temporarily investable cash, which includes certificates of deposit, a money market fund, and U.S. Treasury notes[234](index=234&type=chunk) Hypothetical Annual Impact of Interest Rate Changes on Income (Pre-Tax, in thousands, based on July 31, 2023 balances): | Basis Point Change | Net Increase (Decrease) in Income (Pre-Tax) | | :----------------- | :------------------------------------------ | | Up 300 | $9,546 | | Up 200 | $6,364 | | Up 100 | $3,182 | | Down 100 | $(3,182) | | Down 200 | $(6,364) | | Down 300 | $(9,546) | - The Company is exposed to foreign currency translation effects from its APC subsidiary (Euros to U.S. dollars)[235](index=235&type=chunk) - Commodity price risks, particularly for steel, copper, concrete, and fuel, impact fixed-price contracts. The Company mitigates this by securing firm quotes and early procurement for major projects[237](index=237&type=chunk) - Global supply chain disruptions continue to challenge operations and may adversely affect future revenues by impacting project owners' confidence in commencing new work[238](index=238&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on management's evaluation of the effectiveness of the Company's disclosure controls and procedures, concluding they were effective, and confirms no significant changes in internal controls over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of July 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[239](index=239&type=chunk) - There have been no significant changes in internal control over financial reporting during the fiscal quarter ended July 31, 2023, that materially affected or are reasonably likely to materially affect internal control over financial reporting[240](index=240&type=chunk) Part II. Other Information [Item 1. Legal Proceedings](index=40&type=section&id=Item%201.%20Legal%20Proceedings) This section states management's opinion that no current legal claims or proceedings are expected to have a material effect on the Company's condensed consolidated financial statements - Management believes that any current claims or legal proceedings will not have a material effect on the condensed consolidated financial statements as of July 31, 2023[241](index=241&type=chunk) [Item 1A. Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Company's Annual Report have occurred[242](index=242&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=40&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's ongoing Share Repurchase Plan, including the number of shares repurchased and the average price paid during the three months ended July 31, 2023, and the remaining authorized amount - The board of directors authorized a Share Repurchase Plan for up to **$125 million** of common stock[243](index=243&type=chunk) Share Repurchase Activity (Three Months Ended July 31, 2023): | Period | Shares Repurchased | Average Price per Share | Remaining Value (in thousands) | | :---------------- | :----------------- | :---------------------- | :----------------------------- | | May 1 - 31, 2023 | 3,932 | $39.96 | $32,574 | | June 1 - 30, 2023 | 21,701 | $39.98 | $31,706 | | July 1 - 31, 2023 | 51,499 | $38.88 | $29,704 | | **Total** | **77,132** | | | - Since November 2021, the Company has repurchased **2,553,254 shares** at an average price of **$37.32 per share** under the plan[245](index=245&type=chunk) [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[246](index=246&type=chunk) [Item 4. Mine Safety Disclosures](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[246](index=246&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section states that there is no other information to report - No other information is reported[246](index=246&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL interactive data files - The exhibits include certifications from the CEO and CFO (Exhibit 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy files (Exhibit 101.INS, SCH, CAL, LAB, PRE, DEF, 104)[246](index=246&type=chunk) SIGNATURES [Signatures](index=42&type=section&id=Signatures) This section contains the official signatures of the Company's President and Chief Executive Officer, and the Senior Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary, certifying the filing of the report - The report is duly signed on behalf of Argan, Inc. by David H. Watson, President and Chief Executive Officer, and Richard H. Deily, Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary, on September 6, 2023[251](index=251&type=chunk)

Financial Data and Key Metrics Changes - First quarter 2024 revenues increased by 4% to $104 million compared to the same period in fiscal 2023 [13] - Gross margins declined to 13.7% from 19.7% in the first quarter of fiscal 2023, primarily due to changes in revenue mix [14] - Net income for the first quarter of 2024 was $2.1 million or $0.16 per diluted share, down from $7 million or $0.50 per diluted share in the first quarter of fiscal 2023 [16] - EBITDA decreased to $4 million from $11 million in the first quarter of fiscal 2023, attributed to revenue mix changes and a fraud-related loss [16] Business Segment Data and Key Metrics Changes - Power industry services accounted for 68% of first quarter revenues, focusing on various power facility constructions [9] - Industrial Field and Fabrication Services contributed 29% of revenues, with a strong performance noted [10] - Telecommunications Infrastructure services, the smallest segment, contributed 3% of revenues [11] Market Data and Key Metrics Changes - The backlog stood at over $0.8 billion as of April 30, 2023, consistent with year-end fiscal 2023 [16] - 81% of the current backlog supports lower carbon emissions projects, indicating a shift towards cleaner energy [12] Company Strategy and Development Direction - The company aims to leverage its core competencies to capitalize on emerging market opportunities and maintain disciplined risk management [22] - Focus on strengthening its position as a partner in constructing new low and net-zero emission power generation facilities [22] - The company is positioned to benefit from the transition from coal-fired power generation to renewable energy sources [12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the long-term growth driven by the demand for diverse energy sources and supportive federal legislation [7] - The company anticipates adding new large projects in the current year, despite potential short-term fluctuations in backlog [25] - Management highlighted the importance of project success for future business and margin improvement [29] Other Important Information - The company repurchased approximately 93,000 shares for about $3.7 million during the first quarter [9] - A one-time pre-tax charge of approximately $3.2 million related to fraudulent wire transfers was recorded [15] - The balance sheet remains strong with $317 million in cash and liquid investments and no debt [19] Q&A Session Summary Question: Development of the pipeline of new projects - Management is excited about the pipeline and expects to add new large projects, though backlog may temporarily decrease as current projects convert to revenue [25] Question: Performance of The Roberts industrial fab business - The Roberts Company has seen a 180% growth in backlog to over $150 million, with expectations for continued growth despite potential recession impacts [27] Question: Margin activity in the quarter - Margins fluctuate due to project mix and risk profiles, with expectations for full-year margins to improve beyond the reported 13.7% [29] Question: Status of the Guernsey project - Completion involves several closing tasks, and additional revenue is expected as the project wraps up [33] Question: Timeline for peak activity at Trumbull - Trumbull is expected to ramp up throughout the year, with peak activity likely occurring in fiscal year 2025 [38] Question: Impact of the Mountain Valley Pipeline on Argan - Permitting reforms related to the Mountain Valley Pipeline are expected to indirectly benefit Argan by expediting project development [42] Question: Cash flow generation expectations for fiscal 2024 - Cash flow generation is difficult to model due to project timing, but positive cash flow is anticipated as new projects start [45]

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 April 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT For the Transition Period from to Commission File Number 001-31756 (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identificat ...

PART I [ITEM 1. BUSINESS](index=4&type=section&id=ITEM%201.%20BUSINESS) Argan, Inc. operates through subsidiaries providing EPC services in power, industrial, and telecommunications infrastructure, focusing on project development, safety, and ESG - Argan, Inc. operates through wholly-owned subsidiaries GPS, APC, TRC, and SMC, providing services in **power industry, industrial fabrication, and telecommunications infrastructure**[15](index=15&type=chunk) Consolidated Revenues by Segment (Fiscal 2021-2023) | Segment | Fiscal 2023 Revenue ($M) | Fiscal 2022 Revenue ($M) | Fiscal 2021 Revenue ($M) | Fiscal 2023 % of Total | Fiscal 2022 % of Total | Fiscal 2021 % of Total | | :-------------------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | :--------------------- | :--------------------- | | Power Industry Services | 346.0 | 398.1 | 319.4 | 76% | 78% | 81% | | Industrial Fabrication & Field Services | 92.8 | 97.9 | 65.3 | 20% | 19% | 17% | | Telecommunications Infrastructure Services | 16.2 | 13.4 | 7.6 | 4% | 3% | 2% | - The company's project backlog for the power industry services segment was approximately **$0.7 billion** at January 31, 2023, comparable to the previous year[21](index=21&type=chunk) - Major active projects include the 1,875 MW Guernsey Power Station (expected completion Q3 Fiscal 2024), 950 MW Trumbull Energy Center (completion by end of Fiscal 2026), 2x330 MW Kilroot Power Station (completion by end of Fiscal 2024), three 65 MW ESB FlexGen Peaker Plants (completion by end of Fiscal 2024), and the 100 MW Maple Hill Solar facility (completion H2 Fiscal 2024)[24](index=24&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company faces challenges in **labor shortages, rising wages (up 5.3% YoY)**, and supply chain uncertainties, which may impact project commencement and revenues[41](index=41&type=chunk)[42](index=42&type=chunk)[48](index=48&type=chunk) - Argan maintains a **$50.0 million credit agreement** with Bank of America, N.A., amended in April 2021 and March 2023, with no outstanding borrowings but **$8.8 million in letters of credit** as of January 31, 2023[73](index=73&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - The company's OSHA reportable incident rates were significantly better than the national average in its industry for calendar years 2018-2022, demonstrating a strong commitment to safety[77](index=77&type=chunk) - An ESG subcommittee of the board of directors was formed in Fiscal 2021 and elevated to full committee status in Fiscal 2023 to support environmental, social, and governance initiatives[81](index=81&type=chunk) [ITEM 1A. RISK FACTORS](index=13&type=section&id=ITEM%201A.%20RISK%20FACTORS) Argan faces significant risks from economic downturns, project uncertainties, operational challenges, regulatory changes, and market competition - The majority of consolidated revenues (**76% in Fiscal 2023**) are from the power industry services segment, making future awards of utility-scale natural gas-fired and renewable energy EPC projects critical for revenue sustainability[98](index=98&type=chunk)[100](index=100&type=chunk) - Project backlog, totaling **$0.8 billion** at January 31, 2023, is subject to uncertainty due to potential adjustments, delays, and cancellations, which could adversely affect future revenues and profits[107](index=107&type=chunk)[110](index=110&type=chunk) - Unsuccessful project development efforts, such as the Chickahominy Power Station, can lead to significant write-offs, including an impairment loss of **$7.9 million** recorded in Fiscal 2022[111](index=111&type=chunk)[113](index=113&type=chunk) - The company faces risks from fixed-price contracts, where cost overruns due to inaccurate estimates, supply chain disruptions, labor shortages, or unforeseen technical problems can reduce profits or lead to losses[141](index=141&type=chunk)[142](index=142&type=chunk)[145](index=145&type=chunk) - Cybersecurity breaches pose a risk, as evidenced by a complex criminal scheme in March 2023 resulting in an anticipated **$3.0 million pre-tax charge** for unrecovered fraudulent wire transfers[168](index=168&type=chunk) - Changes in tax laws, such as the Global Minimum Tax and the GILTI provision, could increase corporate taxes, and a **1% excise tax on stock repurchases** (effective January 1, 2023) may alter future repurchase plans[169](index=169&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=26&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) The company reports that there are no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported[189](index=189&type=chunk) [ITEM 2. PROPERTIES](index=26&type=section&id=ITEM%202.%20PROPERTIES) Argan, Inc. and its subsidiaries occupy various owned and leased properties for corporate headquarters, industrial fabrication, and operational support - Corporate headquarters are leased in Rockville, Maryland, expiring May 31, 2024[190](index=190&type=chunk) - GPS owns and occupies a **23,380 sq ft office building** in Glastonbury, Connecticut[190](index=190&type=chunk) - TRC owns a **90,000 sq ft industrial fabrication and warehouse facility** in Winterville, North Carolina, and leases two additional offices[191](index=191&type=chunk) - APC owns office space in Limerick, Ireland, and an operations support facility in Nenagh, Ireland, and leases office/warehouse space in the U.K[192](index=192&type=chunk) - SMC leases facilities in Tracys Landing, Maryland, and Hampton, Virginia[193](index=193&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=27&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) The company refers to Note 11 for a discussion of legal proceedings, specifically a settlement in September 2021 - A discussion of legal proceedings, including a settlement in September 2021, is presented in Note 11[196](index=196&type=chunk) - Management believes other current claims or proceedings will not materially affect consolidated financial statements[196](index=196&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=27&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Argan, Inc.'s common stock trades on the NYSE under the symbol AGX, with consistent quarterly cash dividends and an active share repurchase program - Common stock trades on the NYSE under the symbol AGX, with approximately **57 stockholders of record** as of April 10, 2023[198](index=198&type=chunk) - Regular quarterly cash dividends of **$0.25 per share** have been paid since Fiscal 2019, totaling **$1.00 per share annually**; special cash dividends of **$1.00 per share** were also paid in July and December 2020[199](index=199&type=chunk) - The share repurchase program was increased to **$125 million** in December 2022; in Fiscal 2023, **1,855,714 shares** were repurchased for approximately **$68.2 million** at an average price of **$36.77 per share**[187](index=187&type=chunk)[201](index=201&type=chunk)[202](index=202&type=chunk) Equity Compensation Plan Information (as of January 31, 2023) | Metric | Value | | :------------------------------------ | :------ | | Number of Securities Issuable under Outstanding Options | 1,439,668 | | Weighted Average Exercise Price of Outstanding Options | $43.84 | | Number of Securities Remaining Available for Future Awards | 188,879 | [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=29&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section analyzes Argan's Fiscal 2023 financial performance, noting decreased revenues and net income due to reduced project activity, while highlighting strong liquidity and critical accounting policies Consolidated Operating Results (Fiscal 2022 vs. Fiscal 2023) | Metric | Fiscal 2023 ($M) | Fiscal 2022 ($M) | Change ($M) | Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :---------- | :--------- | | Revenues | 455.0 | 509.4 | (54.4) | (10.7)% | | Gross

Fourth Quarter PRESENTATION & Year End 2023 Results Safe Harbor Statement All statements in this presentation that are not historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements, may be identified by words such as "believe," "intend," "expect," "may," "could," "would," "will," "should," "plan," "project," "contemplate," "anticipate," or similar statements. Because these statements reflect the current views of Argan, ...

Financial Data and Key Metrics Changes - Fourth quarter 2023 revenues declined by 5.4% to $119 million, impacted by project timing and costs in the Power Industry Services segment [11][12] - Net income attributed to stockholders for the fourth quarter was $13.6 million or $1 per diluted share, significantly up from $2.2 million or $0.14 per diluted share in the same quarter last year [14] - Full-year fiscal 2023 revenues were $455 million, an 11% decrease from the previous year, with net income attributed to stockholders at $33.1 million or $2.33 per diluted share, down from $38.2 million or $2.40 per share last year [16] Business Segment Data and Key Metrics Changes - Power Industry Services generated revenues of $346 million, representing 76% of consolidated revenues, with a pretax income of $50 million [16] - Industrial Field and Fabrication Services reported revenues of $93 million, contributing 20% to consolidated revenues, achieving pretax income of $7 million [16] - Telecommunications Infrastructure Services generated revenues of $16 million, accounting for 4% of consolidated revenues [16] Market Data and Key Metrics Changes - The current backlog totals approximately $800 million, with 85% of projects supporting a low carbon emissions economy [11][22] - The company is positioned to benefit from the decline of coal-fired power generation and the growth of sustainable alternatives, with a significant opportunity in the energy transition [10][11] Company Strategy and Development Direction - The company aims to leverage its core competencies to capitalize on existing and emerging market opportunities, focusing on long-term value creation for shareholders [23][22] - The strategic focus includes strengthening its position as a partner for building new low and net zero emission power generation facilities while maintaining grid reliability [23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the project pipeline, noting that 85% of the backlog relates to the power segment, primarily gas-fired power plants [26] - The company anticipates that the global energy transition will create greater demand for its expertise and services [23] Other Important Information - The company has a strong balance sheet with $325.5 million in cash and no debt, reflecting a solid financial underpinning for growth [19][20] - The share repurchase program was increased to $125 million, with nearly $92 million returned to shareholders since November 2021 [21] Q&A Session Summary Question: Likelihood of an additional significant Gemma project in fiscal year 2024 - Management indicated a strong backlog with 85% related to the power segment, suggesting a firm outlook for project funding and execution [26] Question: Optimal level of backlog given labor availability - Management believes a backlog of $2 billion is achievable, emphasizing local labor utilization and robust project opportunities [29] Question: Cash flow generation expectations for fiscal year 2024 - Management clarified that cash flow is project-dependent, with expectations for an increase in cash and short-term investments in fiscal 2024 based on project timing [31] Question: Mix of renewables and gas in the project pipeline - Management noted a balanced focus on both gas and renewable projects, with a significant portion of the backlog currently reflecting gas opportunities [36] Question: Impact of the IRA on demand - Management expects the IRA to facilitate power generation build-out, leading to increased opportunities despite some industry challenges [39] Question: Backlog and market activity in the industrial fabrication business - Management reported a record project backlog in the industrial segment, with strong activity primarily in the Southeast U.S. [40] Question: Revenue recognition cadence for the Trumbull project - Management described the revenue recognition as a bell curve, with costs incurred primarily during the construction phase [44]

[FORM 10-Q Cover Page](index=1&type=section&id=FORM%2010-Q%20Cover%20Page) This section provides the standard SEC filing information for Argan, Inc., including its identification as an accelerated filer and details about its common stock [Registrant Information](index=1&type=section&id=Registrant%20Information) This section provides the standard SEC filing information for Argan, Inc., including its identification as an accelerated filer and details about its common stock - Registrant: Argan, Inc[1](index=1&type=chunk)[141](index=141&type=chunk) - Quarterly Period Ended: October 31, 2022[1](index=1&type=chunk)[141](index=141&type=chunk) Title of Each Class | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | :------------------------ | :---------------- | :---------------------------------------- | | Common Stock, $0.15 par value | AGX | New York Stock Exchange | - Common stock outstanding as of December 6, 2022: **13,576,285 shares**[2](index=2&type=chunk)[142](index=142&type=chunk) [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part contains the company's unaudited condensed consolidated financial statements and management's discussion and analysis [ITEM 1. FINANCIAL STATEMENTS](index=2&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS) This section presents the unaudited condensed consolidated financial statements for Argan, Inc. and its subsidiaries, including statements of earnings, balance sheets, stockholders' equity, and cash flows, along with accompanying notes, providing a comprehensive overview of the company's financial position and performance [Condensed Consolidated Statements of Earnings](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) The company reported a significant decrease in net income for both the three and nine months ended October 31, 2022, compared to the prior year, driven by lower revenues and increased income tax expense Three Months Ended October 31, 2022 vs. 2021 (Dollars in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | Revenues | 117,875 | 124,451 | (6,576) | (5.3)% | | Gross Profit | 22,208 | 26,135 | (3,927) | (15.0)% | | Income from Operations | 9,541 | 14,545 | (5,004) | (34.4)% | | Net Income | 7,758 | 12,393 | (4,635) | (37.4)% | | Diluted EPS | $0.56 | $0.78 | ($0.22) | (28.2)% | Nine Months Ended October 31, 2022 vs. 2021 (Dollars in thousands) | Metric | 2022 | 2021 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | Revenues | 336,262 | 383,800 | (47,538) | (12.4)% | | Gross Profit | 66,333 | 77,501 | (11,168) | (14.4)% | | Income from Operations | 32,107 | 45,688 | (13,581) | (29.7)% | | Net Income | 19,465 | 36,029 | (16,564) | (46.0)% | | Diluted EPS | $1.36 | $2.25 | ($0.89) | (39.6)% | - Cash dividends per share remained constant at **$0.25** for both the three and nine months ended October 31, 2022 and 2021[3](index=3&type=chunk)[143](index=143&type=chunk) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The company's total assets and total equity decreased significantly from January 31, 2022, to October 31, 2022, primarily due to a substantial reduction in cash and cash equivalents and an increase in treasury stock Balance Sheet Highlights (October 31, 2022 vs. January 31, 2022, Dollars in thousands) | Metric | Oct 31, 2022 | Jan 31, 2022 | | :---------------------- | :----------- | :----------- | | Cash and cash equivalents | 136,065 | 350,472 | | Short-term investments | 150,566 | 90,026 | | Accounts receivable, net | 37,899 | 26,978 | | Contract assets | 11,551 | 4,904 | | Total Current Assets | 364,965 | 507,284 | | Total Assets | 410,903 | 553,585 | | Accounts payable | 45,268 | 41,822 | | Accrued expenses | 40,243 | 53,315 | | Contract liabilities | 49,031 | 127,890 | | Total Current Liabilities | 134,542 | 223,027 | | Total Liabilities | 139,163 | 227,990 | | Total Stockholders' Equity | 272,537 | 326,392 | | Treasury stock, at cost | (83,657) | (20,405) | - Cash and cash equivalents decreased by **$214.4 million (61.2%)** from January 31, 2022, to October 31, 2022[5](index=5&type=chunk)[145](index=145&type=chunk) - Contract liabilities decreased significantly by **$78.9 million (61.7%)** from January 31, 2022, to October 31, 2022[6](index=6&type=chunk)[146](index=146&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased by $53.8 million from February 1, 2022, to October 31, 2022, primarily due to common stock repurchases and cash dividends, partially offset by net income and stock compensation expense Changes in Stockholders' Equity (Nine Months Ended October 31, 2022, Dollars in thousands) | Item | Amount | | :------------------------- | :----- | | Balances, February 1, 2022 | 325,595 | | Net income | 19,465 | | Foreign currency translation loss | (2,601) | | Stock compensation expense | 3,055 | | Stock option exercises | 66 | | Common stock repurchases | (63,252) | | Cash dividends | (10,588) | | Balances, October 31, 2022 | 271,740 | - Common shares outstanding decreased from **15,257,688** at February 1, 2022, to **13,575,772** at October 31, 2022, primarily due to common stock repurchases[11](index=11&type=chunk)[151](index=151&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a significant net decrease in cash and cash equivalents for the nine months ended October 31, 2022, primarily due to cash used in operating, investing, and financing activities, a reversal from the net increase in the prior year Cash Flow Summary (Nine Months Ended October 31, 2022 vs. 2021, Dollars in thousands) | Activity | 2022 | 2021 | Change ($) | | :------------------------ | :-------- | :-------- | :--------- | | Net cash (used in) provided by operating activities | (72,988) | 41,699 | (114,687) |\n| Net cash used in investing activities | (62,332) | (5,208) | (57,124) |\n| Net cash used in financing activities | (73,774) | (10,435) | (63,339) |\n| Effects of exchange rate changes on cash | (5,313) | (1,164) | (4,149) |\n| Net (decrease) increase in cash and cash equivalents | (214,407) | 24,892 | (239,299) |\n| Cash and cash equivalents, end of period | 136,065 | 391,563 | (255,498) | - Operating cash flow shifted from a **$41.7 million** inflow in 2021 to a **$73.0 million** outflow in 2022[12](index=12&type=chunk)[152](index=152&type=chunk) - Financing activities used substantially more cash in 2022 (**$73.8 million**) compared to 2021 (**$10.4 million**), primarily due to common stock repurchases of **$63.3 million**[12](index=12&type=chunk)[152](index=152&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures regarding the company's accounting policies, financial statement line items, and significant events, offering context to the condensed consolidated financial statements [NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION](index=6&type=section&id=NOTE%201%20%E2%80%93%20DESCRIPTION%20OF%20THE%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Argan, Inc. operates through its wholly-owned subsidiaries in power industry services (GPS, APC), industrial fabrication and field services (TRC), and telecommunications infrastructure services (SMC), with a fiscal year ending January 31. The financial statements are unaudited interim reports prepared under SEC rules - Argan operates through three reportable segments: Power Industry Services (GPS, APC), Industrial Fabrication and Field Services (TRC), and Telecommunications Infrastructure Services (SMC)[16](index=16&type=chunk)[156](index=156&type=chunk) - The company was deemed the primary beneficiary of a Variable Interest Entity (VIE) for a natural gas-fired power plant project, which was later canceled in March 2022 due to a lack of equity financing, resulting in a **$7.9 million** impairment loss in Fiscal 2022[21](index=21&type=chunk)[22](index=22&type=chunk)[161](index=161&type=chunk)[162](index=162&type=chunk) [NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS](index=7&type=section&id=NOTE%202%20%E2%80%93%20REVENUES%20FROM%20CONTRACTS%20WITH%20CUSTOMERS) The company recognizes revenue primarily from long-term construction contracts (fixed-price or time-and-materials) over time, based on a five-step model. Contract assets and liabilities reflect the timing of revenue recognition and payments, with significant amounts of retained funds - Revenue recognition follows a five-step model, primarily for long-term construction contracts (fixed-price or time-and-materials) with revenue recognized over time as performance obligations are satisfied[23](index=23&type=chunk)[163](index=163&type=chunk) - Contract retentions by project owners were **$49.4 million** at October 31, 2022, an increase from **$40.4 million** at January 31, 2022[24](index=24&type=chunk)[164](index=164&type=chunk) - Remaining Unsatisfied Performance Obligations (RUPO) totaled **$328.1 million** at October 31, 2022, with approximately **30%** expected to be recognized in the remainder of Fiscal 2023 and most of the rest in Fiscal 2024[28](index=28&type=chunk)[168](index=168&type=chunk) Consolidated Revenues by Geographic Area (Dollars in thousands) | Geographic Area | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | United States | 81,810 | 110,196 | 256,031 | 349,066 | | Republic of Ireland | 21,833 | 9,698 | 47,019 | 21,947 | | United Kingdom | 14,232 | 4,496 | 33,212 | 12,283 | | Other | — | 61 | — | 504 | | **Consolidated Revenues** | **117,875** | **124,451** | **336,262** | **383,800** | [NOTE 3 – CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS](index=10&type=section&id=NOTE%203%20%E2%80%93%20CASH%2C%20CASH%20EQUIVALENTS%20AND%20SHORT-TERM%20INVESTMENTS) The company holds cash equivalents in money market funds and short-term investments in certificates of deposit (CDs) with Bank of America. The weighted average annual interest rate on CDs increased significantly to 2.5% at October 31, 2022, from 0.1% at January 31, 2022 Cash, Cash Equivalents and Short-Term Investments (Dollars in thousands) | Item | Oct 31, 2022 | Jan 31, 2022 | | :---------------------- | :----------- | :----------- | | Cash and cash equivalents | 136,065 | 350,472 | | Short-term investments | 150,566 | 90,026 | - The weighted average annual interest rate of outstanding CDs increased to **2.5%** at October 31, 2022, from **0.1%** at January 31, 2022[31](index=31&type=chunk)[171](index=171&type=chunk) [NOTE 4 – ACCOUNTS AND NOTES RECEIVABLE](index=10&type=section&id=NOTE%204%20%E2%80%93%20ACCOUNTS%20AND%20NOTES%20RECEIVABLE) The company extends credit without tangible collateral and monitors credit loss exposure. The allowance for credit losses remained stable at $2.4 million at both October 31, 2022, and January 31, 2022 - Allowance for credit losses was **$2.4 million** at both October 31, 2022, and January 31, 2022[32](index=32&type=chunk)[172](index=172&type=chunk) [NOTE 5 – PURCHASED INTANGIBLE ASSETS](index=10&type=section&id=NOTE%205%20%E2%80%93%20PURCHASED%20INTANGIBLE%20ASSETS) Goodwill balances primarily relate to GPS and TRC, remaining stable at $18.5 million and $9.5 million, respectively. Other purchased intangible assets, mainly for TRC, decreased slightly due to amortization - Goodwill balances for GPS and TRC were **$18.5 million** and **$9.5 million**, respectively, at both October 31, 2022, and January 31, 2022[33](index=33&type=chunk)[173](index=173&type=chunk) Other Purchased Intangible Assets (Net, Dollars in thousands) | Asset Type | Oct 31, 2022 | Jan 31, 2022 | | :------------------- | :----------- | :----------- | | Trade name | 2,424 | 2,650 | | Process certifications | 23 | 226 | | Customer relationships | 283 | 351 | | Customer contracts | — | 95 | | **Totals** | **2,730** | **3,322** | [NOTE 6 – FINANCING ARRANGEMENTS](index=10&type=section&id=NOTE%206%20%E2%80%93%20FINANCING%20ARRANGEMENTS) The company's Credit Agreement with Bank of America was amended in April 2021, extending its expiration to May 31, 2024, and reducing the LIBOR-based borrowing rate. No borrowings were outstanding at October 31, 2022, but $8.2 million in letters of credit were issued for APC, a decrease from $21.5 million at January 31, 2022 - The Credit Agreement was amended to extend the expiration date to **May 31, 2024**, and reduced the borrowing rate to **30-day LIBOR plus 1.6%**[34](index=34&type=chunk)[174](index=174&type=chunk) - No borrowings were outstanding under the Credit Agreement at October 31, 2022[36](index=36&type=chunk)[176](index=176&type=chunk) - Letters of credit outstanding totaled **$8.2 million** at October 31, 2022, supporting APC's activities, down from **$21.5 million** at January 31, 2022[36](index=36&type=chunk)[176](index=176&type=chunk) - The company expects to amend the Credit Agreement before the end of Fiscal 2023 to replace LIBOR with an equivalent benchmark rate, with no material impact expected[36](index=36&type=chunk)[176](index=176&type=chunk) [NOTE 7 – COMMITMENTS](index=11&type=section&id=NOTE%207%20%E2%80%93%20COMMITMENTS) The company's commitments include operating leases for office space and equipment, performance bonds and guarantees for projects, and assurance-type warranties for construction contracts - Operating lease expense for the three and nine months ended October 31, 2022, was **$0.6 million** and **$1.9 million**, respectively, a decrease from **$1.1 million** and **$3.0 million** in the prior year[37](index=37&type=chunk)[177](index=177&type=chunk) Future Minimum Lease Payments for Operating Leases (as of October 31, 2022, Dollars in thousands) | Years Ending January 31, | Amount | | :----------------------- | :----- | | 2023 (remainder) | 396 | | 2024 | 600 | | 2025 | 395 | | 2026 | 249 | | 2027 | 231 | | Thereafter | 1,028 | | **Total lease payments** | **2,899** | | Less interest portion | 177 | | **Present value of lease payments** | **2,722** | - Estimated unsatisfied bonded performance obligations were approximately **$0.1 billion** at October 31, 2022, down from **$0.2 billion** at January 31, 2022[41](index=41&type=chunk)[181](index=181&type=chunk) - A financial guarantee of **$3.6 million** was provided on behalf of GPS to an equipment manufacturer, with an estimated loss liability established in Fiscal 2022[41](index=41&type=chunk)[181](index=181&type=chunk) [NOTE 8 – LEGAL CONTINGENCIES](index=13&type=section&id=NOTE%208%20%E2%80%93%20LEGAL%20CONTINGENCIES) Management believes no current claims or legal proceedings are expected to have a material adverse effect on the condensed consolidated financial statements - No current claims or legal proceedings are expected to have a material adverse effect on the condensed consolidated financial statements[44](index=44&type=chunk)[184](index=184&type=chunk) [NOTE 9 – STOCK-BASED COMPENSATION](index=13&type=section&id=NOTE%209%20%E2%80%93%20STOCK-BASED%20COMPENSATION) The company operates under the 2020 Stock Plan, awarding stock options and restricted stock units to employees and directors. Stock compensation expense increased for both the three and nine months ended October 31, 2022 - The 2020 Stock Plan has **1,939,402 shares** of common stock reserved for issuance, with **236,146 shares** available for future awards[44](index=44&type=chunk)[184](index=184&type=chunk) Stock Compensation Expense (Dollars in thousands) | Period | 2022 | 2021 | | :---------------------- | :--- | :--- | | Three Months Ended Oct 31 | 1,100 | 900 | | Nine Months Ended Oct 31 | 3,100 | 2,500 | - Unrecognized compensation cost related to outstanding stock awards was **$7.2 million** at October 31, 2022, expected to be expensed over the next three years[49](index=49&type=chunk)[189](index=189&type=chunk) Stock Option Activity (Nine Months Ended Oct 31, 2022, Shares in thousands) | Metric | Shares | Exercise Price (WA) | | :------------------------- | :----- | :------------------ | | Outstanding, Feb 1, 2022 | 1,405 | $44.35 | | Granted | 38 | $36.78 | | Exercised | (2) | $32.68 | | Forfeited | (36) | $48.98 | | Outstanding, Oct 31, 2022 | 1,405 | $44.04 | | Exercisable, Oct 31, 2022 | 1,188 | $44.76 | Restricted Stock Unit Activity (Nine Months Ended Oct 31, 2022, Shares in thousands) | Metric | Shares | Fair Value (WA) | | :------------------------- | :----- | :-------------- | | Outstanding, Feb 1, 2022 | 222 | $31.48 | | Awarded | 135 | $27.22 | | Issued | (37) | $38.51 | | Forfeited | (22) | $40.85 | | Outstanding, Oct 31, 2022 | 298 | $29.42 | [NOTE 10 – INCOME TAXES](index=15&type=section&id=NOTE%2010%20%E2%80%93%20INCOME%20TAXES) Income tax expense for the nine months ended October 31, 2022, increased significantly due to an unfavorable $6.2 million adjustment from an IRS settlement related to research and development tax credits Income Tax Expense (Nine Months Ended October 31, Dollars in thousands) | Metric | 2022 | 2021 | | :----------------- | :------ | :------ | | Income tax expense | (14,510) | (11,228) | - An unfavorable adjustment of approximately **$6.2 million** related to the settlement of research and development tax credit claims with the IRS was included in income tax expense for the nine months ended October 31, 2022[56](index=56&type=chunk)[196](index=196&type=chunk) - The company filed for a **$12.7 million** income tax refund by carrying back its Fiscal 2020 Net Operating Loss (NOL) under the CARES Act, which is still pending IRS processing[54](index=54&type=chunk)[194](index=194&type=chunk) - The company's investment in solar energy projects generated approximately **$1.1 million** in income for the nine months ended October 31, 2022, and recognized **$3.3 million** in investment tax credits during the nine months ended October 31, 2021[59](index=59&type=chunk)[199](index=199&type=chunk) [NOTE 11 – NET INCOME PER SHARE](index=17&type=section&id=NOTE%2011%20%E2%80%93%20NET%20INCOME%20PER%20SHARE) Diluted net income per share decreased to $0.56 for the three months and $1.36 for the nine months ended October 31, 2022, compared to $0.78 and $2.25 respectively in the prior year Net Income Per Share (Three Months Ended October 31) | Metric | 2022 | 2021 | | :---------- | :---- | :---- | | Basic EPS | $0.56 | $0.79 | | Diluted EPS | $0.56 | $0.78 | Net Income Per Share (Nine Months Ended October 31) | Metric | 2022 | 2021 | | :---------- | :---- | :---- | | Basic EPS | $1.36 | $2.29 | | Diluted EPS | $1.36 | $2.25 | - Antidilutive stock options covering **1,016,834 shares** (three months) and **978,834 shares** (nine months) were excluded from diluted EPS calculations for 2022[63](index=63&type=chunk)[64](index=64&type=chunk)[203](index=203&type=chunk)[204](index=204&type=chunk) [NOTE 12 – CASH DIVIDENDS AND COMMON STOCK REPURCHASES](index=17&type=section&id=NOTE%2012%20%E2%80%93%20CASH%20DIVIDENDS%20AND%20COMMON%20STOCK%20REPURCHASES) The company declared regular quarterly cash dividends of $0.25 per share. It repurchased 1,721,015 shares of common stock for $63.3 million during the nine months ended October 31, 2022, as part of its Share Repurchase Plan - Regular quarterly cash dividends of **$0.25 per share** were declared and paid[65](index=65&type=chunk)[205](index=205&type=chunk) - The company repurchased **1,721,015 shares** of common stock for approximately **$63.3 million** (average **$36.75 per share**) during the nine months ended October 31, 2022[65](index=65&type=chunk)[205](index=205&type=chunk) - For the three months ended October 31, 2022, **308,423 shares** were repurchased for approximately **$10.1 million** (average **$32.69 per share**)[65](index=65&type=chunk)[205](index=205&type=chunk) [NOTE 13 – CUSTOMER CONCENTRATIONS](index=18&type=section&id=NOTE%2013%20%E2%80%93%20CUSTOMER%20CONCENTRATIONS) The power industry services segment continues to be the primary revenue driver, accounting for 76-80% of consolidated revenues. Customer concentration remains significant, with a few major customers contributing substantial portions of revenues, accounts receivable, and contract assets Consolidated Revenues by Segment (% of Total) | Segment | Three Months Ended Oct 31, 2022 | Three Months Ended Oct 31, 2021 | Nine Months Ended Oct 31, 2022 | Nine Months Ended Oct 31, 2021 | | :------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Power Industry Services | 77% | 80% | 76% | 77% | | Industrial Services | 20% | 17% | 20% | 20% | - For the three months ended October 31, 2022, four power industry service customers accounted for **33%**, **12%**, **12%**, and **12%** of consolidated revenues[67](index=67&type=chunk)[207](index=207&type=chunk) - As of October 31, 2022, accounts receivable from two major customers represented **35%** and **13%** of the consolidated balance, and the contract asset balance related to one major customer represented **19%**[67](index=67&type=chunk)[207](index=207&type=chunk) [NOTE 14 – SEGMENT REPORTING](index=18&type=section&id=NOTE%2014%20%E2%80%93%20SEGMENT%20REPORTING) The company reports across three segments: Power Industry Services, Industrial Fabrication and Field Services, and Telecommunications Infrastructure Services. Intersegment revenues were minimal for the three months ended October 31, 2022, but higher for the nine-month period in 2021 - Intersegment revenues were **$0.3 million** for the three months and **$0.6 million** for the nine months ended October 31, 2022[68](index=68&type=chunk)[208](index=208&type=chunk) Segment Operating Results (Three Months Ended October 31, 2022, Dollars in thousands) | Segment | Revenues | Gross Profit | Income (loss) from operations | | :------------------------ | :------- | :----------- | :---------------------------- | | Power Services | 90,682 | 17,957 | 11,212 | | Industrial Services | 22,137 | 3,400 | 1,577 | | Telecom Services | 5,056 | 851 | 55 | | Other | — | — | (3,303) | | **Totals** | **117,875** | **22,208** | **9,541** | Segment Operating Results (Nine Months Ended October 31, 2022, Dollars in thousands) | Segment | Revenues | Gross Profit | Income (loss) from operations | | :------------------------ | :------- | :----------- | :---------------------------- | | Power Services | 255,958 | 52,973 | 34,555 | | Industrial Services | 67,660 | 10,692 | 5,425 | | Telecom Services | 12,644 | 2,668 | 299 | | Other | — | — | (8,172) | | **Totals** | **336,262** | **66,333** | **32,107** | [NOTE 15 – SUBSEQUENT EVENT](index=20&type=section&id=NOTE%2015%20%E2%80%93%20SUBSEQUENT%20EVENT) On November 3, 2022, GPS received full notice to proceed with the EPC contract for the 950 MW Trumbull Energy Center natural gas-fired power plant in Ohio, with construction beginning and completion scheduled for calendar 2026 - On November 3, 2022, GPS received full notice to proceed with the EPC contract for the **950 MW** Trumbull Energy Center natural gas-fired power plant in Lordstown, Ohio[74](index=74&type=chunk)[214](index=214&type=chunk) - Construction of the Trumbull Energy Center has begun, with completion scheduled for **calendar 2026**[74](index=74&type=chunk)[214](index=214&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=20&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the company's financial performance and condition for the three and nine months ended October 31, 2022, discussing operating results, project backlog, market outlook, liquidity, and critical accounting policies [Cautionary Statement Regarding Forward Looking Statements](index=21&type=section&id=Cautionary%20Statement%20Regarding%20Forward%20Looking%20Statements) The company's forward-looking statements are subject to significant risks and uncertainties, and actual results may differ materially from projections. The company does not undertake to update these statements - Forward-looking statements are based on current expectations and beliefs but involve significant risks and uncertainties, and actual results may vary materially[77](index=77&type=chunk)[217](index=217&type=chunk) - The company undertakes no obligation to publicly update or revise any forward-looking statements[77](index=77&type=chunk)[217](index=217&type=chunk) [Business Description](index=21&type=section&id=Business%20Description) Argan is a construction firm operating through subsidiaries in power industry services (GPS, APC), industrial fabrication and field services (TRC), and telecommunications infrastructure services (SMC), with a strategy to pursue opportunistic acquisitions for profitable growth and synergies - Argan is primarily a construction firm operating through GPS, APC (power industry services), TRC (industrial fabrication and field services), and SMC (telecommunications infrastructure services)[78](index=78&type=chunk)[218](index=218&type=chunk) - The company seeks opportunistic acquisitions and/or investments in companies with significant potential for profitable growth and synergies[78](index=78&type=chunk)[218](index=218&type=chunk) [Overview](index=21&type=section&id=Overview) Consolidated revenues and gross profit decreased for both the three and nine months ended October 31, 2022, primarily due to reduced activity in the power industry services segment, while SG&A expenses increased. Net income and diluted EPS also declined significantly [Operating Results](index=21&type=section&id=Operating%20Results) Consolidated revenues decreased by 5.3% for the three months and 12.4% for the nine months ended October 31, 2022, primarily due to reduced power industry services activity. Gross profit percentages slightly declined, and net income per diluted share decreased significantly - Consolidated revenues decreased by **$6.6 million (5.3%)** to **$117.9 million** for the three months ended October 31, 2022, and by **$47.5 million (12.4%)** to **$336.3 million** for the nine months ended October 31, 2022[79](index=79&type=chunk)[80](index=80&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Power industry services revenues decreased by **$8.9 million (8.9%)** for the three months and **$39.8 million (13.5%)** for the nine months, while industrial services revenues increased by **3.4%** for three months but decreased by **13.5%** for nine months[79](index=79&type=chunk)[80](index=80&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk) - Consolidated gross profit percentage was **18.8%** for the three months (down from **21.0%**) and **19.7%** for the nine months (down from **20.2%**)[80](index=80&type=chunk)[220](index=220&type=chunk) - Net income per diluted share was **$0.56** for the three months (down from **$0.78**) and **$1.36** for the nine months (down from **$2.25**), with the nine-month figure reduced by **$0.43** due to an unfavorable income tax adjustment[80](index=80&type=chunk)[220](index=220&type=chunk) [Project Backlog](index=22&type=section&id=Project%20Backlog) Consolidated project backlog increased to $0.8 billion at October 31, 2022, from $0.7 billion at January 31, 2022, primarily driven by new power industry services contracts like the Trumbull Energy Center and Kilroot project, and increased industrial services backlog - Consolidated project backlog increased to **$0.8 billion** at October 31, 2022, from **$0.7 billion** at January 31, 2022, primarily from the power industry services segment[81](index=81&type=chunk)[221](index=221&type=chunk) - New projects added to backlog include the Trumbull Energy Center (**950 MW** natural gas-fired power plant in Ohio), Maple Hill Solar facility (**100 MW** solar plant in Pennsylvania), Kilroot Power Station (**2 x 330 MW** natural gas-fired plant in Northern Ireland), and three **65 MW** flexible generation power plants in Dublin, Ireland[83](index=83&type=chunk)[85](index=85&type=chunk)[223](index=223&type=chunk)[225](index=225&type=chunk) - The project backlog of TRC (industrial fabrication and field services) increased by over **100%** to approximately **$97 million**, focusing on larger industrial field service projects[85](index=85&type=chunk)[225](index=225&type=chunk) - A **625 MW** power plant project in Harrison County, West Virginia, was removed from backlog due to a lack of meaningful development milestones[83](index=83&type=chunk)[223](index=223&type=chunk) [Market Outlook](index=24&type=section&id=Market%20Outlook) The market outlook for the power business is characterized by a continued shift from coal to natural gas and renewables, with natural gas projected to remain a primary source. However, environmental activism, regulatory uncertainty, and supply chain disruptions pose challenges, while hydrogen-burning capabilities and small modular nuclear reactors offer future opportunities. Overseas markets in Ireland and the U.K. also present significant growth opportunities for conventional and flexible generation - The U.S. electricity generation mix is shifting from coal (**45%** in 2010 to **22%** in 2021) to natural gas (**24%** in 2010 to **38%** in 2021) and renewables. EIA projects coal to decline to **11%** by 2050, natural gas to increase to **34%**, and renewables to exceed **42%**[86](index=86&type=chunk)[87](index=87&type=chunk)[226](index=226&type=chunk)[227](index=227&type=chunk) - Challenges include environmental activism, restrictive regulations, difficulty in obtaining project equity financing, supply chain disruptions, and grid congestion, which may delay or cancel new energy projects[86](index=86&type=chunk)[88](index=88&type=chunk)[125](index=125&type=chunk)[226](index=226&type=chunk)[228](index=228&type=chunk)[265](index=265&type=chunk) - Opportunities exist in modern natural gas-fired power plants (especially with hydrogen-burning capabilities), small modular nuclear reactors, and carbon capture/removal technologies. Overseas markets in Ireland and the U.K. also show strong demand for conventional and flexible power generation to support renewable growth[88](index=88&type=chunk)[90](index=90&type=chunk)[91](index=91&type=chunk)[92](index=92&type=chunk)[228](index=228&type=chunk)[230](index=230&type=chunk)[231](index=231&type=chunk)[232](index=232&type=chunk) [Comparison of the Results of Operations for the Three Months Ended October 31, 2022 and 2021](index=28&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Three%20Months%20Ended%20October%2031%2C%202022%20and%202021) Net income decreased by 37.4% to $7.8 million, or $0.56 per diluted share, for the three months ended October 31, 2022, compared to the prior year, primarily due to lower revenues in power industry services and increased SG&A expenses [Revenues](index=29&type=section&id=Revenues%20(Three%20Months)) Consolidated revenues decreased by 5.3% YoY. Power industry services revenues declined due to projects passing peak levels, while industrial fabrication and field services and telecommunications infrastructure services saw increases Revenues by Segment (Three Months Ended October 31, Dollars in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Power industry services | 90,682 | 99,560 | (8,878) | (8.9)% | | Industrial fabrication and field services | 22,137 | 21,402 | 735 | 3.4% | | Telecommunications infrastructure services | 5,056 | 3,489 | 1,567 | 44.9% | | **Total Revenues** | **117,875** | **124,451** | **(6,576)** | **(5.3)%** | - Power industry services revenues decreased due to the Guernsey Power Station and Equinix data center projects passing peak construction levels[96](index=96&type=chunk)[236](index=236&type=chunk) - Telecommunications infrastructure services revenues increased significantly by **44.9%**, partly due to the acquisition of Lee Telecom, Inc. in December 2021[99](index=99&type=chunk)[239](index=239&type=chunk) [Cost of Revenues](index=30&type=section&id=Cost%20of%20Revenues%20(Three%20Months)) Consolidated cost of revenues decreased by 2.7% in line with lower revenues. Gross profit percentage declined to 18.8% from 21.0% in the prior year - Consolidated cost of revenues decreased by **2.7%** to **$95.7 million** for the three months ended October 31, 2022[100](index=100&type=chunk)[240](index=240&type=chunk) - Consolidated gross profit percentage decreased to **18.8%** from **21.0%** in the prior year[100](index=100&type=chunk)[240](index=240&type=chunk) Segment Gross Profit Percentages (Three Months Ended October 31) | Segment | 2022 | 2021 | | :--------------------------------- | :---- | :---- | | Power industry services | 19.8% | 23.1% | | Industrial fabrication and field services | 15.4% | 12.6% | | Telecommunications infrastructure services | 16.8% | 11.3% | [Selling, General and Administrative Expenses](index=30&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20(Three%20Months)) SG&A expenses increased by 9.3% to $12.7 million, primarily due to costs associated with the retirement of the former CEO - Selling, general and administrative expenses increased by **$1.1 million (9.3%)** to **$12.7 million**, primarily due to costs associated with the retirement of the Company's former chief executive officer[101](index=101&type=chunk)[241](index=241&type=chunk) [Other Income, Net](index=30&type=section&id=Other%20Income%2C%20Net%20(Three%20Months)) Other income, net, decreased to $0.8 million, primarily from increased interest income on money market accounts and CDs, partially offset by a prior-year COVID-19 relief grant - Other income, net, was **$0.8 million**, down from **$1.1 million** in the prior year, reflecting increased interest income from money market accounts and CDs, partially offset by a prior-year COVID-19 relief grant[102](index=102&type=chunk)[242](index=242&type=chunk) [Income Taxes](index=30&type=section&id=Income%20Taxes%20(Three%20Months)) Income tax expense decreased to $2.6 million, with an effective tax rate of 24.7%, reflecting an estimated annual effective rate of 23.8% due to state income taxes and permanent differences - Income tax expense was **$2.6 million**, representing an effective tax rate of **24.7%** for the three months ended October 31, 2022[103](index=103&type=chunk)[243](index=243&type=chunk) - The estimated annual effective income tax rate is **23.8%**, differing from the statutory federal rate of **21%** due to state income taxes and permanent differences[103](index=103&type=chunk)[243](index=243&type=chunk) [Comparison of the Results of Operations for the Nine Months Ended October 31, 2022 and 2021](index=30&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Nine%20Months%20Ended%20October%2031%2C%202022%20and%202021) Net income decreased by 46.0% to $19.5 million, or $1.36 per diluted share, for the nine months ended October 31, 2022, primarily due to lower revenues across power and industrial segments, increased SG&A, and an unfavorable tax adjustment [Revenues](index=31&type=section&id=Revenues%20(Nine%20Months)) Consolidated revenues decreased by 12.4% YoY. Power industry services and industrial fabrication and field services experienced declines, while telecommunications infrastructure services grew due to an acquisition Revenues by Segment (Nine Months Ended October 31, Dollars in thousands) | Segment | 2022 | 2021 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Power industry services | 255,958 | 295,736 | (39,778) | (13.5)% | | Industrial fabrication and field services | 67,660 | 78,213 | (10,553) | (13.5)% | | Telecommunications infrastructure services | 12,644 | 9,851 | 2,793 | 28.4% | | **Total Revenues** | **336,262** | **383,800** | **(47,538)** | **(12.4)%** | - Power industry services revenues decreased as construction activities for the Guernsey Power Station project passed peak levels, partially offset by increases from the Maple Hill solar energy facility and several APC projects[107](index=107&type=chunk)[247](index=247&type=chunk) - Telecommunications infrastructure services revenues increased by **28.4%**, primarily due to the addition of revenues from Lee Telecom, Inc. (LTI) acquired in December 2021[109](index=109&type=chunk)[249](index=249&type=chunk) [Cost of Revenues](index=32&type=section&id=Cost%20of%20Revenues%20(Nine%20Months)) Consolidated cost of revenues decreased by 11.9% in line with lower revenues. Gross profit percentage slightly declined to 19.7% from 20.2% in the prior year - Consolidated cost of revenues decreased by **11.9%** to **$269.9 million** for the nine months ended October 31, 2022[110](index=110&type=chunk)[250](index=250&type=chunk) - Consolidated gross profit percentage decreased to **19.7%** from **20.2%** in the prior year[110](index=110&type=chunk)[250](index=250&type=chunk) Segment Gross Profit Percentages (Nine Months Ended October 31) | Segment | 2022 | 2021 | | :--------------------------------- | :---- | :---- | | Power industry services | 20.7% | 21.0% | | Industrial fabrication and field services | 15.8% | 17.5% | | Telecommunications infrastructure services | 21.1% | 17.8% | [Selling, General and Administrative Expenses](index=32&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses%20(Nine%20Months)) SG&A expenses increased by 7.6% to $34.2 million, driven by executive retirement costs, increased stock compensation, and professional fees - Selling, general and administrative expenses increased by **$2.4 million (7.6%)** to **$34.2 million**, primarily due to executive retirement costs, increased stock compensation expense, and professional fees[111](index=111&type=chunk)[251](index=251&type=chunk) [Other Income, Net](index=32&type=section&id=Other%20Income%2C%20Net%20(Nine%20Months)) Other income, net, increased to $1.9 million, primarily from solar fund investments and interest income, offsetting a prior-year R&D credit payment and solar fund loss - Other income, net, was **$1.9 million**, up from **$1.6 million** in the prior year, primarily due to the company's share of earnings from solar fund investments and interest income from money market accounts and CDs[112](index=112&type=chunk)[252](index=252&type=chunk) - The prior year (2021) included a **$0.7 million** research and development credit payment from the U.K. government and a **$0.4 million** net loss from a solar fund investment[112](index=112&type=chunk)[252](index=252&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes%20(Nine%20Months)) Income tax expense increased to $14.5 million, including a $6.2 million unfavorable adjustment from an IRS settlement. The effective tax rate (excluding adjustment) was 24.5% - Income tax expense was **$14.5 million**, including an unfavorable **$6.2 million** adjustment related to the settlement of research and development claims with the IRS[113](index=113&type=chunk)[253](index=253&type=chunk) - Excluding the IRS settlement adjustment, the effective income tax rate for the nine months ended October 31, 2022, was **24.5%**, compared to **23.8%** in the prior year[113](index=113&type=chunk)[253](index=253&type=chunk) [Liquidity and Capital Resources as of October 31, 2022](index=32&type=section&id=Liquidity%20and%20Capital%20Resources%20as%20of%20October%2031%2C%202022) Cash and cash equivalents decreased significantly by $214.4 million to $136.1 million, primarily due to cash used in operating, investing (short-term investments), and financing activities (stock repurchases and dividends). Net liquidity also decreased, but the company believes current resources are adequate for foreseeable business needs - Cash and cash equivalents decreased by **$214.4 million** to **$136.1 million** at October 31, 2022, from **$350.5 million** at January 31, 2022[114](index=114&type=chunk)[254](index=254&type=chunk) - Net cash used in operating activities was **$73.0 million** for the nine months ended October 31, 2022, a significant shift from **$41.7 million** provided in the prior year[114](index=114&type=chunk)[254](index=254&type=chunk) - Cash used in financing activities totaled **$73.8 million**, including **$63.3 million** for common stock repurchases and **$10.6 million** for cash dividends[115](index=115&type=chunk)[255](index=255&type=chunk) - Net liquidity (working capital) decreased by **$53.8 million** to **$230.4 million** at October 31, 2022[115](index=115&type=chunk)[255](index=255&type=chunk) - The company believes its cash on hand, cash equivalents, short-term investments, and future operations will be adequate to meet general business needs, but significant future acquisitions may require additional financing[116](index=116&type=chunk)[256](index=256&type=chunk) [Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")](index=35&type=section&id=Earnings%20before%20Interest%2C%20Taxes%2C%20Depreciation%20and%20Amortization%20(%22EBITDA%22)) EBITDA decreased for both the three and nine months ended October 31, 2022, reflecting the decline in net income. EBITDA is presented as a non-GAAP measure to assess operating performance EBITDA (Dollars in thousands) | Period | 2022 | 2021 | | :---------------------- | :----- | :----- | | Three Months Ended Oct 31 | 11,261 | 16,708 | | Nine Months Ended Oct 31 | 36,882 | 50,497 | - EBITDA is a non-GAAP measure used to assess and compare operating performance by removing the impacts of capital structure, depreciation, amortization, and income taxes[119](index=119&type=chunk)[259](index=259&type=chunk) [Critical Accounting Policies](index=35&type=section&id=Critical%20Accounting%20Policies) The company's critical accounting policies involve subjective judgments and estimates, particularly for revenue recognition on long-term contracts, income tax reporting, business combinations, asset valuations, and legal matters. No material changes occurred in these policies during the quarter - Critical accounting policies include revenue recognition on long-term construction contracts, income tax reporting, business combinations, valuation of goodwill and other long-lived assets, and financial reporting for significant claims or legal matters[120](index=120&type=chunk)[260](index=260&type=chunk) - No material changes in the application of critical accounting policies occurred during the three months ended October 31, 2022[120](index=120&type=chunk)[260](index=260&type=chunk) [Recently Issued Accounting Pronouncements](index=36&type=section&id=Recently%20Issued%20Accounting%20Pronouncements) There are no recently issued accounting pronouncements that the company considers material to its consolidated financial statements that have not yet been adopted - No recently issued accounting pronouncements are considered material to the consolidated financial statements that have not yet been adopted[122](index=122&type=chunk)[262](index=262&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=36&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to interest rate risk on its investable cash and foreign currency translation risk due to overseas operations. Commodity price risks and supply chain disruptions also pose challenges to fixed-price contracts - The company had no outstanding borrowings under its **$50.0 million** revolving loan at October 31, 2022, but its investable cash (CDs and money market funds) had a weighted average annual interest rate of **2.57%**[123](index=123&type=chunk)[263](index=263&type=chunk) - The company is subject to foreign currency translation effects, particularly from the Euro's depreciation against the U.S. dollar, which has reduced reported cash, revenues, and backlog for APC[123](index=123&type=chunk)[263](index=263&type=chunk) - Commodity price risks (steel, copper, concrete, fuel) impact fixed-price contracts, with mitigation strategies including securing firm quotes and early procurement of materials[125](index=125&type=chunk)[265](index=265&type=chunk) - Global supply chain disruptions are impacting project owners' confidence in commencing new work, potentially affecting future revenue levels[125](index=125&type=chunk)[265](index=265&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=37&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of October 31, 2022, providing reasonable assurance for timely and accurate reporting. No significant changes in internal controls over financial reporting occurred during the quarter - Management concluded that disclosure controls and procedures were effective as of October 31, 2022, providing reasonable assurance for timely and accurate reporting[126](index=126&type=chunk)[266](index=266&type=chunk) - No significant changes in internal control over financial reporting occurred during the fiscal quarter ended October 31, 2022[126](index=126&type=chunk)[266](index=266&type=chunk) [PART II. OTHER INFORMATION](index=37&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part includes disclosures on legal proceedings, risk factors, equity security sales, defaults, mine safety, other information, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=37&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Management believes that no current legal claims or proceedings will have a material effect on the company's condensed consolidated financial statements - No current claims or legal proceedings are expected to have a material adverse effect on the condensed consolidated financial statements[127](index=127&type=chunk)[267](index=267&type=chunk) [ITEM 1A. RISK FACTORS](index=37&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the risk factors previously disclosed in the company's Annual Report - No material changes to the risk factors disclosed in the company's Annual Report[128](index=128&type=chunk)[268](index=268&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=37&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company increased its Share Repurchase Plan authorization to $100 million and repurchased 308,423 shares for $10.1 million during the three months ended October 31, 2022. Since November 2021, a total of 2,248,767 shares have been repurchased for an average price of $37.19 per share - The Share Repurchase Plan authorization was increased from **$75 million** to **$100 million** on September 8, 2022[129](index=129&type=chunk)[269](index=269&type=chunk) Share Repurchases (Three Months Ended October 31, 2022, Dollars in thousands) | Period | Total Number of Shares Repurchased | Average Price per Share Paid | | :----------------- | :--------------------------------- | :--------------------------- | | August 1 - 31, 2022 | — | — | | September 1 - 30, 2022 | 164,200 | $32.70 | | October 1 - 31, 2022 | 144,223 | $32.68 | | **Total** | **308,423** | **$32.69** | - Since November 2021, the company has repurchased **2,248,767 shares** of common stock at an average price of **$37.19 per share**[131](index=131&type=chunk)[271](index=271&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=38&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) No defaults upon senior securities were reported - No defaults upon senior securities[132](index=132&type=chunk)[272](index=272&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=38&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the company - This item is not applicable[132](index=132&type=chunk)[272](index=272&type=chunk) [ITEM 5. OTHER INFORMATION](index=38&type=section&id=ITEM%205.%20OTHER%20INFORMATION) Key executive leadership changes occurred in August 2022, with David H. Watson promoted to CEO, Rainer H. Bosselmann retiring as CEO but remaining on the board, William F. Leimkuhler appointed Chairman, and Richard H. Deily promoted to CFO - David H. Watson was promoted to President and Chief Executive Officer, effective **August 16, 2022**[133](index=133&type=chunk)[273](index=273&type=chunk) - Rainer H. Bosselmann retired as CEO and Chairman but continues to serve as a board member, with a retirement agreement for **$225,000 per annum** for three years[133](index=133&type=chunk)[273](index=273&type=chunk) - William F. Leimkuhler was appointed Chairman of the Board, and Richard H. Deily was promoted to Chief Financial Officer, both effective **August 16, 2022**[133](index=133&type=chunk)[273](index=273&type=chunk) [ITEM 6. EXHIBITS](index=39&type=section&id=ITEM%206.%20EXHIBITS) This section lists the exhibits filed with the Form 10-Q, including XBRL interactive data files and employment/retirement agreements - Exhibits include XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Label Linkbase, Presentation Linkbase, and Definition Document[135](index=135&type=chunk)[275](index=275&type=chunk) - Key agreements referenced include the Retirement Agreement for Rainer H. Bosselmann and Employment Agreements for David H. Watson and Richard H. Deily[137](index=137&type=chunk)[277](index=277&type=chunk) [SIGNATURES](index=39&type=section&id=SIGNATURES) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report [Signatories](index=39&type=section&id=Signatories) The report is signed by David H. Watson, President and Chief Executive Officer, and Richard H. Deily, Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary, on December 7, 2022 - The report was signed by David H. Watson, President and Chief Executive Officer, and Richard H. Deily, Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary[139](index=139&type=chunk)[279](index=279&type=chunk) - Date of signing: **December 7, 2022**[139](index=139&type=chunk)[279](index=279&type=chunk)