[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)

PART I [ITEM 1. BUSINESS](index=3&type=section&id=ITEM%201.%20BUSINESS) Argan, Inc. operates through subsidiaries in power generation EPC, industrial fabrication, and telecom, with power services as the largest segment - **Argan, Inc. operates through four main subsidiaries**: GPS and APC (power industry), TRC (industrial fabrication), and SMC (telecommunications infrastructure services)[7](index=7&type=chunk)[518](index=518&type=chunk) - The company's strategy includes **opportunistic acquisitions and investments** in companies with significant growth potential and synergies[7](index=7&type=chunk)[518](index=518&type=chunk) Power Industry Services Revenue Contribution | Fiscal Year | Revenue (Millions USD) | % of Consolidated Revenues | |:------------|:-----------------------|:---------------------------| | 2022 | $398.1 | 78% | | 2021 | $319.4 | 81% | | 2020 | $135.7 | 57% | [Holding Company Structure](index=4&type=section&id=Holding%20Company%20Structure) Argan, Inc., a Delaware corporation since 1961, operates as a holding company seeking opportunistic acquisitions for profitable growth - **Argan, Inc. is a Delaware corporation organized in May 1961**, operating as a holding company with current investments in GPS, APC, TRC, and SMC[7](index=7&type=chunk)[518](index=518&type=chunk) - The company plans to pursue additional **opportunistic acquisitions and investments**, targeting companies with significant potential for profitable growth and synergies[7](index=7&type=chunk)[518](index=518&type=chunk) [Power Industry Services](index=4&type=section&id=Power%20Industry%20Services) This segment, through GPS and APC, provides comprehensive EPC services for power generation, including renewables, across U.S. and international markets - **GPS, acquired in 2006, is a full-service EPC firm** with over fifteen years of experience in designing, building, and commissioning large-scale energy projects in the U.S., including combined-cycle, simple-cycle peaking, boiler, and renewable energy facilities[7](index=7&type=chunk)[518](index=518&type=chunk) - **APC, acquired in May 2015, provides turbine, boiler, and large rotating equipment services** to power plant operators, data centers, and manufacturers in Ireland, the U.K., and the U.S., representing the international focus of this segment[7](index=7&type=chunk)[518](index=518&type=chunk) Power Industry Services Revenue (Fiscal Years) | Fiscal Year | Revenue (Millions USD) | |:------------|:-----------------------| | 2022 | $398.1 | | 2021 | $319.4 | | 2020 | $135.7 | - Major projects include the **1,875 MW natural gas-fired Guernsey Power Station** (U.S., expected completion H2 Fiscal 2023), the **100 MW Maple Hill Solar facility** (U.S., expected completion H2 Fiscal 2023), and the **2 x 330 MW natural gas-fired Kilroot Power Station** (Northern Ireland, expected completion H2 Fiscal 2024)[8](index=8&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk)[519](index=519&type=chunk)[521](index=521&type=chunk)[522](index=522&type=chunk) [Major Customer Contracts & Backlog](index=6&type=section&id=Major%20Customer%20Contracts) Power industry backlog decreased to $0.7 billion, impacted by project delays and cancellations, including Chickahominy Power Station, due to regulatory and financing issues Project Backlog (Power Industry Services) | Date | Backlog (Billions USD) | |:--------------|:-----------------------| | Jan 31, 2022 | $0.7 | | Jan 31, 2021 | $0.8 | - Delays in new EPC project awards and construction starts for gas-fired power plants in the U.S. (especially PJM region) are due to difficulties in obtaining permits, securing fuel delivery, establishing grid connections, and capital market uncertainties[18](index=18&type=chunk)[529](index=529&type=chunk) - The **Chickahominy Power Station project (1,740 MW natural gas-fired) was cancelled** in March 2022 due to rejection of a planned gas pipeline expansion, loss of PJM interconnection service, and inability to secure equity financing, resulting in a **$7.9 million impairment loss** on capitalized project development costs in Fiscal 2022[24](index=24&type=chunk)[28](index=28&type=chunk)[535](index=535&type=chunk)[539](index=539&type=chunk) - The company is actively pursuing **renewable energy projects** (wind farms, solar fields, hydrogen-based) to complement its natural gas-fired EPC services, citing past successes and the Maple Hill Solar project as an example[26](index=26&type=chunk)[537](index=537&type=chunk) [Special Purpose Entities](index=10&type=section&id=Special%20Purpose%20Entities) Argan uses SPEs, including VIEs, for project development to secure EPC contracts and earn fees, recording a **$7.9 million impairment** for the cancelled Chickahominy VIE - Argan participates in power plant project development and financing through **SPEs (joint ventures, limited partnerships, LLCs)** to secure future EPC contracts, generate interest income, and earn project development success fees[27](index=27&type=chunk)[538](index=538&type=chunk) - In January 2018, Argan became the primary beneficiary of a VIE for the Chickahominy Power Station, including its balances in consolidated financial statements, with a **$7.9 million impairment loss** recorded in Fiscal 2022 due to project cancellation[28](index=28&type=chunk)[539](index=539&type=chunk) [Labor and Materials](index=10&type=section&id=Labor%20and%20Materials) The company faces labor shortages and rising wages, with global supply chain disruptions impacting schedules, but mitigates material cost risks through early procurement - The construction industry faces **labor shortages**, with unemployment at 6.7% (Feb 2022) and wages rising by approximately **5.1%** over the last year, posing challenges for staffing projects[30](index=30&type=chunk)[541](index=541&type=chunk) - **Global supply chain disruptions**, including those caused by COVID-19, have challenged project schedules and may impact project owners' confidence in commencing new work[33](index=33&type=chunk)[36](index=36&type=chunk)[544](index=544&type=chunk)[547](index=547&type=chunk) - The company mitigates material cost risks for major fixed-price contracts by **procuring the majority of equipment and construction supplies during early project phases**[35](index=35&type=chunk)[546](index=546&type=chunk) [Competition](index=12&type=section&id=Competition) Argan's power services compete globally on fixed-price contracts, facing intense bidding despite some competitors exiting, leveraging its track record in gas-fired and alternative energy - GPS competes with large global firms like Kiewit Corporation, while APC competes with companies such as John Wood Group PLC and METKA[37](index=37&type=chunk)[40](index=40&type=chunk)[548](index=548&type=chunk)[551](index=551&type=chunk) - The EPC services market for natural gas-fired power plants has seen competitors exit or avoid fixed-price contracts, yet **intense competition continues**, leading to aggressive bidding and higher risks for contractors[41](index=41&type=chunk)[42](index=42&type=chunk)[552](index=552&type=chunk)[553](index=553&type=chunk) - Argan emphasizes its **proven track record** in designing, building, and commissioning natural gas-fired and alternative energy power systems, including combined-cycle, simple-cycle, wood/coal-fired, waste-to-energy, wind, solar, and biofuel facilities[38](index=38&type=chunk)[549](index=549&type=chunk) - The company incurred a **$29.5 million loss** on the fixed-price TeesREP subcontract in Fiscal 2020, highlighting the risks of such contracts, but remains confident in its project management teams for future execution[43](index=43&type=chunk)[554](index=554&type=chunk) [Customers](index=14&type=section&id=Customers) Guernsey Power Station LLC was Argan's most significant customer in Fiscal 2022 and 2021, contributing **57% and 67% of consolidated revenues**, respectively Significant Customer Revenue Contribution | Fiscal Year | Customer | % of Consolidated Revenues | |:------------|:-----------------------------|:---------------------------| | 2022 | Guernsey Power Station LLC | 57% | | 2021 | Guernsey Power Station LLC | 67% | | 2020 | Guernsey Power Station LLC | >10% | | 2020 | Técnicas Reunidas UK Limited | >10% (together 37%) | [Regulation](index=16&type=section&id=Regulation) Argan's operations are subject to diverse regulations, with increasing renewable energy preference potentially impacting gas-fired projects while creating new opportunities, and the company believes it is compliant - Operations are subject to federal, state, local, and foreign regulations including licensing, building codes, environmental protection, worker safety, and bidding requirements[46](index=46&type=chunk)[557](index=557&type=chunk) - Growing preference for renewable energy and opposition to fossil fuels may lead to more severe restrictions on gas-fired power plants, potentially increasing renewable energy project opportunities[47](index=47&type=chunk)[558](index=558&type=chunk) - The company believes it holds all necessary licenses and is in substantial compliance with applicable regulatory requirements[46](index=46&type=chunk)[557](index=557&type=chunk) [Industrial Fabrication and Field Services](index=16&type=section&id=Industrial%20Fabrication%20and%20Field%20Services) TRC provides industrial field services and fabrication in the southeastern U.S., with revenues increasing **50% to $97.9 million** and backlog growing to **$44.5 million** in Fiscal 2022 - **TRC, founded in 1977, specializes in industrial field services** (over 75% of annual revenues) and metal fabrication for industrial plants in the southeastern U.S.[49](index=49&type=chunk)[560](index=560&type=chunk) TRC Revenue Contribution (Fiscal Years) | Fiscal Year | Revenue (Millions USD) | % of Consolidated Revenues | |:------------|:-----------------------|:---------------------------| | 2022 | $97.9 | 19% | | 2021 | $65.3 | 17% | | 2020 | $94.7 | 40% | - TRC's income from operations increased significantly to **$8.3 million** in Fiscal 2022 from $0.6 million in Fiscal 2021, and its project backlog grew by **$30.5 million to $44.5 million** as of January 31, 2022[51](index=51&type=chunk)[562](index=562&type=chunk)[53](index=53&type=chunk)[564](index=564&type=chunk) [Telecommunications Infrastructure Services](index=17&type=section&id=Telecommunications%20Infrastructure%20Services) SMC provides telecom infrastructure services in the Mid-Atlantic U.S., with revenues increasing **76.4% to $13.4 million** in Fiscal 2022, and expanded through the LTI acquisition - **SMC Infrastructure Solutions offers project management, construction, installation, and maintenance services** for telecommunications infrastructure, primarily to government and commercial customers in the Mid-Atlantic U.S.[55](index=55&type=chunk)[566](index=566&type=chunk) SMC Revenue Contribution (Fiscal Years) | Fiscal Year | Revenue (Millions USD) | % of Consolidated Revenues | |:------------|:-----------------------|:---------------------------| | 2022 | $13.4 | 3% | | 2021 | $7.6 | 2% | | 2020 | $8.6 | 3% | - SMC acquired Lee Telecommunications, Inc. (LTI) for **$0.6 million in cash** in Fiscal 2022, expanding its business into the Tidewater area of Virginia[57](index=57&type=chunk)[568](index=568&type=chunk) [Employees](index=17&type=section&id=Employees) As of January 31, 2022, Argan had **1,358 predominantly full-time employees** with good relations, fluctuating based on construction volume and subcontractor use - As of January 31, 2022, the company had **1,358 employees**, predominantly full-time, with employee relations generally considered good[570](index=570&type=chunk) - The total number of employees is influenced by the volume of ongoing construction and the extent of work performed by subcontractors[570](index=570&type=chunk) [Financing Arrangements](index=17&type=section&id=Financing%20Arrangements) Argan's Credit Agreement was amended, extending to May 2024 with a **$50.0 million lending commitment**; no outstanding borrowings, but **$21.5 million in letters of credit** were issued - The Credit Agreement with Bank of America was amended in April 2021, extending its term to May 31, 2024, and reducing the revolving loan interest rate to **30-day LIBOR plus 1.6%**[571](index=571&type=chunk) Credit Agreement Details (as of Jan 31, 2022) | Feature | Amount/Rate | |:--------------------|:------------------------------------------| | Lending Commitment | $50.0 million | | Revolving Loan Rate | 30-day LIBOR + 1.6% (reduced from 2.0%) | | Accordion Feature | Additional $10.0 million | | Outstanding Borrowings | $0 | | Letters of Credit | $21.5 million (for APC customer contracts) | - The company expects to amend the Credit Agreement in Fiscal 2023 to replace LIBOR with an equivalent benchmark rate, anticipating no significant financial impact[575](index=575&type=chunk) [Safety, Risk Management, Insurance and Performance Bonds](index=19&type=section&id=Safety%2C%20Risk%20Management%2C%20Insurance%20and%20Performance%20Bonds) Argan prioritizes safety with OSHA rates better than average, maintains adequate insurance, and uses performance bonds and letters of credit, with **$235.1 million in bonded obligations** as of January 31, 2022 - Argan maintains a strong commitment to safety, with **OSHA reportable incident rates significantly better than the national industry average** for calendar years 2021 (0.48), 2020 (0.55), and 2019 (0.40)[576](index=576&type=chunk) - The company secures contractual performance through performance bonds and maintains a **$50.0 million commitment** from Bank of America for irrevocable standby letters of credit[577](index=577&type=chunk) Bonded Performance Obligations (as of Jan 31, 2022) | Obligation Type | Amount (Millions USD) | |:--------------------------------|:----------------------| | Unsatisfied Bonded Performance | $235.1 | | Other Risks (e.g., warranties) | $1.0 | [Environmental, Social, and Governance ("ESG") Matters](index=19&type=section&id=Environmental%2C%20Social%2C%20and%20Governance%20%28%22ESG%22%29%20Matters) Argan's ESG subcommittee guides strategy, with accomplishments including increased board diversity and solar investments; **13.4% of power revenues from renewables** in Fiscal 2022, while gas-fired plants are seen as crucial for energy transition - An ESG subcommittee of the board of directors, formed in Fiscal 2021, assists in setting strategy, developing initiatives, overseeing communications, and monitoring developments related to ESG matters[579](index=579&type=chunk) - ESG accomplishments include refreshing the Code of Conduct, increasing board diversity, investing in solar energy funds, and implementing energy efficiency upgrades[581](index=581&type=chunk) - The company is actively targeting renewable energy projects, with revenues from such projects accounting for **13.4% of power industry services segment revenues** in Fiscal 2022 (up from 10.8% in Fiscal 2021)[583](index=583&type=chunk) - Argan believes its gas-fired power plant construction business is valuable for achieving net carbon emission reduction goals in the U.S., U.K., and Ireland, serving as a necessary support for intermittent renewable sources during the transition to net-zero emissions[584](index=584&type=chunk)[585](index=585&type=chunk)[586](index=586&type=chunk) [Materials Filed with the Securities and Exchange Commission](index=21&type=section&id=Materials%20Filed%20with%20the%20Securities%20and%20Exchange%20Commission) Argan's SEC filings, including 10-K, 10-Q, 8-K, and Proxy Statements, are available electronically on the SEC's and company's websites - The company files various reports with the SEC, including 10-K, 10-Q, 8-K, and Proxy Statements, which are accessible on the SEC's website (http://www.sec.gov) and the company's website (www.arganinc.com)[587](index=587&type=chunk)[589](index=589&type=chunk) [ITEM 1A. RISK FACTORS](index=23&type=section&id=ITEM%201A.%20RISK%20FACTORS) Argan faces diverse risks across its segments, including economic downturns, project execution challenges, market volatility, regulatory changes, operational issues, tax uncertainties, and investment-related concerns - The risk factors primarily focus on the power industry services segment, the most significant portion of the consolidated entity, but many risks also apply to the industrial fabrication and field services and telecommunications infrastructure services segments[79](index=79&type=chunk)[590](index=590&type=chunk) - The section includes forward-looking statements, which are subject to significant risks and uncertainties that could cause actual results to differ materially from projections[80](index=80&type=chunk)[716](index=716&type=chunk)[717](index=717&type=chunk) [Risks Related to Our Business](index=23&type=section&id=Risks%20Related%20to%20Our%20Business) Business risks include economic downturns, dependence on new EPC projects, backlog uncertainty, unsuccessful development efforts, bonding requirements, and impacts from natural disasters, pandemics, and geopolitical events - Demand for services may decrease during economic downturns, leading customers to delay or cancel projects, which adversely affects business[82](index=82&type=chunk)[593](index=593&type=chunk) - Future revenues are highly dependent on winning new EPC projects, receiving full notices-to-proceed, and successfully completing projects, with a risk that pending projects may not be built[87](index=87&type=chunk)[598](index=598&type=chunk) - Project backlog of **$0.7 billion** (as of Jan 31, 2022) is an uncertain indicator of future revenues due to potential cancellations, scope modifications, and extended delays[94](index=94&type=chunk)[605](index=605&type=chunk) - Unsuccessful project development efforts, such as the Chickahominy Power Station, can lead to **write-offs of development costs ($7.9 million in Fiscal 2022)** and loss of potential construction business[98](index=98&type=chunk)[609](index=609&type=chunk) - The company's ability to compete for new projects is sensitive to future bonding requirements, as surety companies can decline to issue bonds or require additional collateral[103](index=103&type=chunk)[614](index=614&type=chunk) - Natural disasters, global pandemics (like COVID-19), and geopolitical conflicts (like the war in Ukraine) can disrupt operations, supply chains, and project schedules, with unquantifiable ultimate impacts[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[615](index=615&type=chunk)[616](index=616&type=chunk)[617](index=617&type=chunk)[618](index=618&type=chunk)[620](index=620&type=chunk) [Risks Related to Our Market](index=31&type=section&id=Risks%20Related%20to%20Our%20Market) Market risks include power project delays from auction disruptions, low electricity prices, natural gas price fluctuations, soft power demand, intense competition, and the rise of renewables, alongside foreign market instability - Disruptions in base residual (capacity) auction schedules, particularly by PJM, delay the start of planned power projects and complicate financing for new gas-fired power plants[621](index=621&type=chunk)[622](index=622&type=chunk)[623](index=623&type=chunk) - Low electricity capacity market prices, such as the **60% decrease in PJM's 2022-2023 auction**, may discourage future investment in new gas-fired power plant development[624](index=624&type=chunk) - Increases in natural gas prices could reduce demand for gas-fired power plant construction services, as natural gas's share of electricity generation is sensitive to price changes[625](index=625&type=chunk)[626](index=626&type=chunk) - The continuous rise in utility-scale wind and solar photovoltaic facilities (up **34.8% over two years**, representing **11.9% of net generation in 2021**) could reduce future gas-fired power plant projects, making success in renewable energy projects crucial for the company's growth[630](index=630&type=chunk)[631](index=631&type=chunk)[632](index=632&type=chunk)[633](index=633&type=chunk)[634](index=634&type=chunk)[636](index=636&type=chunk) - Operating in international markets (Ireland, U.K.) exposes the company to risks such as abrupt changes in government policies, trade restrictions, currency fluctuations, and political instability[637](index=637&type=chunk)[638](index=638&type=chunk) [Risks Related to the Regulatory Environment](index=35&type=section&id=Risks%20Related%20to%20the%20Regulatory%20Environment) Regulatory risks include environmental compliance costs, U.S. fossil-fuel policies, fracking acceptability, and permitting delays, alongside potential labor problems impacting project costs and reputation - Compliance with federal, state, and local environmental laws and regulations may add unforeseen costs to business operations[639](index=639&type=chunk)[640](index=640&type=chunk) - U.S. Presidential policies, such as President Biden's carbon-free electricity goals, create regulatory hurdles for fossil-fuel energy facilities, potentially delaying or preventing construction[641](index=641&type=chunk)[642](index=642&type=chunk) - The economic viability of gas-fired power plants depends on inexpensive natural gas supplies, largely enabled by hydraulic fracturing (fracking); future restrictions on fracking could jeopardize these projects[643](index=643&type=chunk)[645](index=645&type=chunk) - Delays in obtaining regulatory approvals for energy projects, including pipelines and transmission lines, due to environmental activism and public opposition, can lead to lost or postponed revenues[647](index=647&type=chunk)[648](index=648&type=chunk) - Work stoppages, union negotiations, and other labor problems could result in cost overruns, schedule delays, lawsuits, and damage to the company's business reputation[649](index=649&type=chunk) [Risks Related to Our Operational Execution](index=37&type=section&id=Risks%20Related%20to%20Our%20Operational%20Execution) Operational risks include cost overruns on fixed-price contracts, performance guarantee liabilities, litigation, subcontractor dependence, safety issues, acquisition integration challenges, and cybersecurity threats - Fixed-price contracts carry risks of reduced profits or losses if actual costs exceed estimates due to factors like supply chain disruptions, technical problems, labor cost increases, and unforeseen events[650](index=650&type=chunk)[652](index=652&type=chunk)[653](index=653&type=chunk) - Guarantees for timely project completion or performance standards can lead to additional costs, liquidated damages, or obligations to re-perform substandard work if not met[655](index=655&type=chunk) - Involvement in litigation, liability claims, and contract disputes with project owners, subcontractors, or vendors can reduce profits and cash flows[656](index=656&type=chunk)[657](index=657&type=chunk)[658](index=658&type=chunk)[660](index=660&type=chunk) - Failure to maintain safe work sites on large, complex, and potentially dangerous projects can result in injuries, illnesses, losses, liability, and reputational damage[661](index=661&type=chunk)[662](index=662&type=chunk) - Future acquisitions may not materialize or be successfully integrated, potentially leading to substantial costs, delays, operational/financial problems, and impairment losses (e.g., **$7.0 million goodwill impairment** for TRC and APC in prior years)[663](index=663&type=chunk)[665](index=665&type=chunk)[667](index=667&type=chunk)[668](index=668&type=chunk) - The company's management information systems face threats from security breaches (cyberattacks, viruses) and system disruptions, which could lead to misappropriation of information, data manipulation, or operational delays, despite deployed security measures and cybersecurity insurance[669](index=669&type=chunk)[670](index=670&type=chunk)[671](index=671&type=chunk)[672](index=672&type=chunk)[674](index=674&type=chunk) [Risks Related to Increased Corporate Taxes](index=47&type=section&id=Risks%20Related%20to%20Increased%20Corporate%20Taxes) Argan faces risks from potential increases in U.S. and foreign corporate tax rates due to changes in tax laws or treaties, and anticipates higher GILTI taxes if foreign operations remain profitable - Changes in tax laws, treaties, or regulations (e.g., increased U.S. corporate tax rates, Global Minimum Tax) could result in higher corporate taxes[675](index=675&type=chunk) - The company expects to pay higher U.S. income taxes due to the Global Intangible Low Tax Income (GILTI) rate if its foreign operations in Ireland and the U.K. remain profitable[676](index=676&type=chunk) [Risks Related to Challenged Tax Positions](index=47&type=section&id=Risks%20Related%20to%20Challenged%20Tax%20Positions) Argan's income tax positions, especially R&D tax credits, are challenged by the IRS for Fiscal 2016-2018, potentially leading to additional tax expense if the 'more-likely-than-not' threshold is not met - Significant judgment is required for determining worldwide income tax provisions, and tax estimates can be materially affected by tax audits, new accounting standards, legislation, and changes in tax strategies[677](index=677&type=chunk) - The IRS has challenged the company's research and development tax credit claims for Fiscal 2016-2018, which could lead to unfavorable adjustments and materially affect net earnings and cash flows[678](index=678&type=chunk)[679](index=679&type=chunk)[680](index=680&type=chunk)[681](index=681&type=chunk) - The company is formally protesting the IRS findings and intends to pursue its income tax position through the appeals process, believing its arguments are sound[680](index=680&type=chunk)[681](index=681&type=chunk) [Risks Related to Anti-Bribery Laws](index=49&type=section&id=Risks%20Related%20to%20Anti-Bribery%20Laws) Violations of anti-bribery laws (e.g., FCPA, U.K. Bribery Act) could result in severe penalties, contract cancellations, debarment, and reputational damage, with even alleged violations being costly - Violations of anti-bribery laws (e.g., FCPA, U.K. Bribery Act) by the company or its intermediaries could lead to criminal/civil penalties, contract cancellations, debarment, and reputational damage[682](index=682&type=chunk) - Litigation or investigations related to alleged anti-bribery violations, even if unfounded, can be costly and divert management attention[682](index=682&type=chunk) [Risks Related to Retaining Talented Personnel](index=49&type=section&id=Risks%20Related%20to%20Retaining%20Talented%20Personnel) Argan's success depends on attracting and retaining skilled personnel and experienced management, with loss of key staff or ineffective transitions negatively impacting business and growth strategy - The company's ability to operate productively and profitably, especially in the power industry, relies on attracting, employing, retaining, and training skilled personnel and maintaining experienced management teams[683](index=683&type=chunk) - Loss of key personnel, ineffective management transitions, or inability to hire and retain qualified employees could negatively impact business management and future growth[683](index=683&type=chunk) [Risks Related to an Investment in Our Securities](index=49&type=section&id=Risks%20Related%20to%20an%20Investment%20in%20Our%20Securities) Investment risks include potential stockholder dilution from acquisitions and equity awards, substantial insider control, uncertainty of future dividends and share repurchases, stock price volatility, and anti-takeover provisions - Future acquisitions may require equity issuances or debt financing, potentially diluting current stockholders' ownership interests[684](index=684&type=chunk) - Outstanding stock options (**1,404,901 shares at $44.35 weighted average exercise price**) and restricted stock units (**222,250 shares**) will result in future ownership dilution upon exercise or issuance[686](index=686&type=chunk)[687](index=687&type=chunk) - Officers, directors, and certain unaffiliated stockholders collectively own a significant portion of voting shares (e.g., executive officers and directors owned **~9.5%** as of Jan 31, 2022), giving them substantial control over corporate actions[689](index=689&type=chunk) - There is no guarantee of future cash dividends, despite a history of regular quarterly and special payments, as dividend decisions depend on ongoing operational and financial performance[690](index=690&type=chunk) - The company's share repurchase program, increased to **$75 million** and authorized until January 2024, may be discontinued at any time[691](index=691&type=chunk) - The common stock may trade thinly and sporadically on the NYSE, leading to price volatility and potential difficulty for investors to dispose of shares at prevailing market prices[692](index=692&type=chunk) - Provisions in the certificate of incorporation and Delaware law, such as the ability to issue preferred stock with superior rights, could deter or make takeover attempts more difficult[693](index=693&type=chunk) [ITEM 1B. UNRESOLVED STAFF COMMENTS](index=53&type=section&id=ITEM%201B.%20UNRESOLVED%20STAFF%20COMMENTS) There are no unresolved staff comments from the SEC - The company has no unresolved staff comments[694](index=694&type=chunk) [ITEM 2. PROPERTIES](index=53&type=section&id=ITEM%202.%20PROPERTIES) Argan and its subsidiaries occupy various owned and leased properties across the U.S., Ireland, and the U.K., including corporate headquarters, office buildings, industrial facilities, and warehouses - Argan's corporate headquarters is leased in Rockville, Maryland, expiring May 31, 2024[694](index=694&type=chunk) - GPS owns and occupies a **23,380 sq ft office building** in Glastonbury, Connecticut[694](index=694&type=chunk) - TRC leases an **18.77-acre industrial facility** in Winterville, North Carolina, and owns another **12.16-acre industrial fabrication and warehouse facility** in the same area[695](index=695&type=chunk)[696](index=696&type=chunk) - APC owns a warehouse in Nenagh, Ireland, leases office/warehouse space in England, and plans to acquire new corporate headquarters in Limerick, Ireland[696](index=696&type=chunk)[699](index=699&type=chunk) - SMC leases facilities in Tracys Landing, Maryland, and acquired a new lease in Hampton, Virginia, for its newly acquired LTI business[697](index=697&type=chunk)[698](index=698&type=chunk) [ITEM 3. LEGAL PROCEEDINGS](index=55&type=section&id=ITEM%203.%20LEGAL%20PROCEEDINGS) Argan settled a lawsuit with Exelon in September 2021, resulting in a **$27.5 million payment** to GPS, with the excess recognized as revenue in Fiscal 2022; other claims are not expected to be material - In September 2021, GPS settled a lawsuit against Exelon for breach of contract related to a gas-fired power plant construction project[700](index=700&type=chunk)[971](index=971&type=chunk)[973](index=973&type=chunk) - The settlement resulted in a **$27.5 million payment** to GPS, with the excess over receivables and contract assets included in revenues for Fiscal 2022[973](index=973&type=chunk) - Management believes no other current claims or legal proceedings will have a material adverse effect on the consolidated financial statements[700](index=700&type=chunk)[971](index=971&type=chunk) PART II [ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES](index=55&type=section&id=ITEM%205.%20MARKET%20FOR%20REGISTRANT%27S%20COMMON%20EQUITY%2C%20RELATED%20STOCKHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20EQUITY%20SECURITIES) Argan's common stock (AGX) trades on the NYSE, with consistent dividends and a **$75 million share repurchase program**; stock performance has lagged benchmarks, and equity compensation plans reserve shares for awards - Argan's common stock (AGX) is listed on the New York Stock Exchange, with approximately **58 stockholders of record** as of April 11, 2022[701](index=701&type=chunk) Cash Dividends Per Share (Fiscal Years) | Fiscal Year | Regular Dividend (USD) | Special Dividend (USD) | Total Dividend (USD) | |:------------|:-----------------------|:-----------------------|:---------------------| | 2022 | $1.00 | $0.00 | $1.00 | | 2021 | $1.00 | $2.00 | $3.00 | | 2020 | $1.00 | $0.00 | $1.00 | - The company initiated a share repurchase program in November 2021, repurchasing **527,752 shares for approximately $20.4 million** (average $38.60/share) by January 31, 2022, and subsequently increased the program from **$50 million to $75 million** in April 2022[704](index=704&type=chunk)[705](index=705&type=chunk)[706](index=706&type=chunk)[1011](index=1011&type=chunk) 5-Year Cumulative Total Return (Indexed to $100 on 1/31/17) | Year Ended Jan 31 | Argan, Inc. | S&P 500 | Dow Jones US Heavy Civil Construction TSM | |:------------------|:------------|:--------|:------------------------------------------| | 2017 | $100.00 | $100.00 | $100.00 | | 2018 | $60.01 | $126.41 | $109.52 | | 2019 | $59.59 | $123.48 | $86.02 | | 2020 | $60.84 | $150.26 | $99.16 | | 2021 | $66.80 | $176.18 | $127.26 | | 2022 | $58.71 | $217.21 | $159.02 | - The 2020 Stock Plan authorizes **500,000 shares** for share-based awards to officers, directors, and key employees, with **1,404,901 shares** issuable under outstanding options and **407,250 shares** available for future awards as of January 31, 2022[711](index=711&type=chunk)[712](index=712&type=chunk)[713](index=713&type=chunk)[714](index=714&type=chunk) [ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=60&type=section&id=ITEM%207.%20MANAGEMENT%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section reviews Argan's Fiscal 2022 and 2021 financial performance, market outlook, liquidity, capital resources, and critical accounting policies, including revenue recognition, goodwill, and income taxes - Consolidated revenues for Fiscal 2022 increased by **29.9% to $509.4 million** from $392.2 million in Fiscal 2021[720](index=720&type=chunk) - Net income attributable to stockholders for Fiscal 2022 was **$38.2 million ($2.40 per diluted share)**, a **60.3% increase** from $23.9 million ($1.51 per diluted share) in Fiscal 2021[724](index=724&type=chunk)[761](index=761&type=chunk)[762](index=762&type=chunk) - The improved operating performance in Fiscal 2022 was primarily driven by increased revenues and gross margin from the Guernsey Power Station, new revenues from the Maple Hill Solar project, and strong results from TRC and APC[725](index=725&type=chunk) [Cautionary Statement Regarding Forward Looking Statements](index=60&type=section&id=Cautionary%20Statement%20Regarding%20Forward%20Looking%20Statements) Forward-looking statements are based on current expectations but involve significant risks and uncertainties, and actual results may vary materially, with no obligation for the company to update them - Forward-looking statements are based on current expectations and beliefs, but involve significant risks, uncertainties, and assumptions, which may cause actual results to differ materially[716](index=716&type=chunk)[717](index=717&type=chunk) - The company does not undertake any obligation to publicly update or revise forward-looking statements[717](index=717&type=chunk) [Business Description](index=61&type=section&id=Business%20Description) Argan is a holding company operating through subsidiaries in power generation EPC, industrial fabrication, and telecommunications, with plans for opportunistic acquisitions to drive growth - Argan operates through wholly-owned subsidiaries GPS, APC (power industry services), TRC (industrial fabrication and field services), and SMC (telecommunications infrastructure services)[718](index=718&type=chunk) - The company intends to make additional opportunistic acquisitions and investments to achieve profitable growth and synergies[719](index=719&type=chunk) [Overview](index=61&type=section&id=Overview) Argan reported a **29.9% increase in consolidated revenues to $509.4 million** in Fiscal 2022, with net income attributable to stockholders rising **60.3% to $38.2 million**, despite a **$7.9 million impairment loss** Consolidated Operating Results (Fiscal Years, in thousands USD) | Metric | Fiscal 2022 | Fiscal 2021 | Change ($) | Change (%) | |:---------------------------|:------------|:------------|:-----------|:-----------| | Revenues | $509,370 | $392,206 | $117,164 | 29.9% | | Gross Profit | $99,732 | $62,067 | $37,665 | 60.7% | | Income from Operations | $44,510 | $23,026 | $21,484 | 93.3% | | Net Income Attributable to Stockholders | $38,244 | $23,851 | $14,393 | 60.3% | | Diluted EPS | $2.40 | $1.51 | $0.89 | 58.9% | - Power industry services revenues increased by **$78.7 million (24.7%) to $398.1 million**, representing **78.2% of consolidated revenues** in Fiscal 2022[721](index=721&type=chunk) - Industrial fabrication and field services revenues increased by **$32.6 million (49.9%) to $97.9 million**, contributing **19.2% of consolidated revenues**[721](index=721&type=chunk) - Telecommunications infrastructure services revenues increased by **76.4% to $13.4 million**, contributing **2.6% of consolidated revenues**[721](index=721&type=chunk) - An impairment loss of **$7.9 million** was recorded in Fiscal 2022 related to capitalized project development costs for an unsuccessful VIE project, with **$2.5 million** attributed to non-controlling interest[723](index=723&type=chunk)[771](index=771&type=chunk) [Engineering, Procurement and Construction Service Contracts](index=63&type=section&id=Engineering%20Procurement%20and%20Construction%20Service%20Contracts) Consolidated project backlog decreased to **$0.7 billion**, with Guernsey Power Station and Maple Hill Solar progressing, APC securing new international projects, and the Chickahominy Power Station cancelled due to fuel and interconnection issues Consolidated Project Backlog | Date | Backlog (Billions USD) | |:--------------|:-----------------------| | Jan 31, 2022 | $0.7 | | Jan 31, 2021 | $0.8 | - The Guernsey Power Station, the largest single-phase gas-fired power plant project in the U.S., represents a meaningful portion of the backlog and is expected to be substantially completed in the second half of Fiscal 2023[727](index=727&type=chunk) - GPS secured an EPC contract for the **100 MW Maple Hill Solar facility** in Pennsylvania, with project completion scheduled for the second half of Fiscal 2023[728](index=728&type=chunk) - APC's project backlog significantly increased with a new **2x330 MW natural gas-fired power plant** in Northern Ireland (expected completion H2 Fiscal 2024) and data center/chip manufacturer projects in Ireland[729](index=729&type=chunk)[730](index=730&type=chunk) - The **1,740 MW Chickahominy Power Station project was cancelled** in Fiscal 2022 due to inability to secure fuel supply and loss of PJM interconnection, resulting in a **$7.9 million impairment loss**[731](index=731&type=chunk)[732](index=732&type=chunk) [Market Outlook](index=65&type=section&id=Market%20Outlook) The power market is shifting from coal to natural gas and renewables, with gas-fired plants facing policy headwinds but remaining crucial for grid reliability, while international markets also show demand for conventional plants to support renewables - Natural gas-fired power plants accounted for **38% of U.S. electricity generation in 2021**, up **60% from 2010**, largely replacing coal-fired plants (which declined from 45% in 2010 to 22% in 2021)[733](index=733&type=chunk) - The EIA projects U.S. utility-scale electricity generation to increase by less than **1% annually through 2050**, with coal-fired generation declining by **45%** and renewables representing over **42% by 2050**[734](index=734&type=chunk)[740](index=740&type=chunk) - U.S. Presidential policies (e.g., carbon-free electricity by 2035, net-zero by 2050) and environmental activism create significant opposition and regulatory hurdles for fossil-fuel projects, leading to project cancellations[735](index=735&type=chunk)[737](index=737&type=chunk)[738](index=738&type=chunk)[739](index=739&type=chunk) - Natural gas is considered a critical transitional fuel for grid reliability, complementing intermittent renewables, with new plants incorporating advanced, efficient, and flexible-fuel (including hydrogen-burning) turbine technologies[742](index=742&type=chunk)[743](index=743&type=chunk)[748](index=748&type=chunk) - Overseas markets in Ireland and the U.K. are committed to renewables but recognize the need for conventional gas-fired generation to support grid stability and data center growth, creating new construction opportunities for APC[751](index=751&type=chunk)[753](index=753&type=chunk)[754](index=754&type=chunk)[755](index=755&type=chunk) [Comparison of the Results of Operations for the Years Ended January 31, 2022 and 2021](index=73&type=section&id=Comparison%20of%20the%20Results%20of%20Operations%20for%20the%20Years%20Ended%20January%2031%2C%202022%20and%202021) Fiscal 2022 saw consolidated revenues increase **29.9% to $509.4 million** and gross profit rise **60.7% to $99.7 million**, driven by strong segment performance, despite a **$7.9 million impairment loss** and higher income tax expense Consolidated Operating Results (Fiscal Years, in thousands USD) | Metric | Fiscal 2022 | Fiscal 2021 | $ Change | % Change | |:---------------------------------------------|:------------|:------------|:-----------|:-----------| | Revenues | $509,370 | $392,206 | $117,164 | 29.9% | | Cost of Revenues | $409,638 | $330,139 | $79,499 | 24.1% | | Gross Profit | $99,732 | $62,067 | $37,665 | 60.7% | | Selling, General & Administrative Expenses | $47,321 | $39,041 | $8,280 | 21.2% | | Impairment Losses | $7,901 | $0 | $7,901 | 100.0% | | Income From Operations | $44,510 | $23,026 | $21,484 | 93.3% | | Other Income, Net | $2,552 | $1,859 | $693 | 37.3% | | Income Before Income Taxes | $47,062 | $24,885 | $22,177 | 89.1% | | Income Tax Expense | $(11,356) | $(1,074) | $(10,282) | (957.4)% | | Net Income Attributable to Stockholders | $38,244 | $23,851 | $14,393 | 60.3% | Segment Revenue Growth (Fiscal 2022 vs. 2021) | Segment | Fiscal 2022 Revenue (Millions USD) | Fiscal 2021 Revenue (Millions USD) | % Change | |:-----------------------------------------|:-----------------------------------|:-----------------------------------|:---------| | Power Industry Services | $398.1 | $319.4 | 24.7% | | Industrial Fabrication and Field Services | $97.9 | $65.3 | 50.0% | | Telecommunications Infrastructure Services | $13.4 | $7.6 | 76.4% | Segment Gross Profit Percentages (Fiscal Years) | Segment | Fiscal 2022 Gross Profit % | Fiscal 2021 Gross Profit % | |:-----------------------------------------|:---------------------------|:---------------------------| | Power Industry Services | 20.3% | 16.4% | | Industrial Fabrication and Field Services | 16.9% | 12.3% | | Telecommunications Infrastructure Services | 17.0% | 22.4% | - Other income in Fiscal 2022 included **$1.7 million in R&D grant payments** from the U.K. government and **$1.1 million in COVID-19 relief** from the Irish government[772](index=772&type=chunk) - The effective income tax rate for Fiscal 2022 was **24.1%**, differing from the 21% statutory federal rate due to state income taxes and nondeductible executive compensation, while Fiscal 2021 benefited from a **$4.4 million NOL carryback benefit**[774](index=774&type=chunk) [Liquidity and Capital Resources as of January 31, 2022](index=77&type=section&id=Liquidity%20and%20Capital%20Resources%20as%20of%20January%2031%2C%202022) As of January 31, 2022, working capital increased to **$284.3 million**, cash decreased to **$350.5 million**, and operating cash flow was **$28.4 million**, with non-operating uses including **$20.4 million for share repurchases** and **$15.7 million for dividends** Liquidity and Capital Resources (in thousands USD) | Metric | Jan 31, 2022 | Jan 31, 2021 | |:---------------------------|:-------------|:-------------| | Working Capital | $284,257 | $270,133 | | Cash and Cash Equivalents | $350,472 | $366,671 | | Net Cash from Operations | $28,415 | $176,013 | - Operating cash flow in Fiscal 2022 was positively impacted by a **$21.7 million decrease in contract assets** due to a legal settlement, but negatively by a **$44.2 million reduction in contract liabilities**[776](index=776&type=chunk) Non-Operating Cash Uses (Fiscal 2022, in millions USD) | Activity | Amount (Millions USD) | |:-------------------------|:----------------------| | Common Stock Repurchases | $20.4 | | Cash Dividends | $15.7 | | Solar Energy Investments | $5.0 | | Capital Expenditures | $1.4 | - The company has a **$50.0 million revolving credit facility** with no outstanding borrowings as of January 31, 2022, but **$21.5 million in letters of credit** support APC's contracts[784](index=784&type=chunk) - Unsatisfied bonded performance obligations totaled **$235.1 million** as of January 31, 2022, with an additional **$1.0 million** in bonds for other risks[787](index=787&type=chunk) - The company invested **$5.0 million in solar energy projects** in Fiscal 2022, expecting a **20% overall return** over six years[789](index=789&type=chunk) [Contractual Obligations](index=81&type=section&id=Contractual%20Obligations) As of January 31, 2022, Argan's contractual obligations remained consistent at **$8.2 million**, primarily comprising operating leases and deferred compensation, with outstanding purchase orders funded by customer billings - No significant change in contractual obligations from **$8.2 million** as of January 31, 2021[791](index=791&type=chunk) - Contractual obligations primarily include operating leases and deferred compensation[791](index=791&type=chunk) - Outstanding purchase orders and subcontracts related to construction contracts are not included as they are expected to be funded by customer billings[791](index=791&type=chunk) [Special Purpose Entities](index=83&type=section&id=Special%20Purpose%20Entities) Argan uses SPEs, including VIEs, for project execution and development, consolidating those where it is the primary beneficiary, and recorded a **$7.9 million impairment loss** for the cancelled Chickahominy Power Station VIE - Argan forms joint ventures, limited partnerships, and limited liability companies (SPEs) with third parties for project execution[792](index=792&type=chunk) - The company consolidates VIEs where it is the primary beneficiary, such as the Chickahominy Power Station development, for which a **$7.9 million impairment loss** was recorded in Fiscal 2022[793](index=793&type=chunk) - Past successful support arrangements with independent parties for gas-fired power plants resulted in **$29.6 million in project development fees** and repayment of **$11.7 million in loans plus $2.3 million in interest**[794](index=794&type=chunk) [Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA")](index=83&type=section&id=Earnings%20before%20Interest%2C%20Taxes%2C%20Depreciation%20and%20Amortization%20%28%22EBITDA%22%29) EBITDA, a non-GAAP measure, was **$51.3 million** in Fiscal 2022, with EBITDA attributable to stockholders at **$53.8 million**, reflecting a significant decrease in operating cash flow primarily due to changes in contract liabilities and assets - EBITDA is a non-GAAP measure used to assess operating cash flow performance by excluding capital structure, depreciation, amortization, and income tax impacts[795](index=795&type=chunk) EBITDA (in thousands USD) | Metric | Fiscal 2022 | Fiscal 2021 | |:---------------------------------------------|:------------|:------------| | Net income, as reported | $35,706 | $23,811 | | Income tax expense | $11,356 | $1,074 | | Depreciation | $3,367 | $3,715 | | Amortization of purchased intangible assets | $870 | $904 | | **EBITDA** | **$51,299** | **$29,504** | | EBITDA of non-controlling interests | $(2,538) | $(40) | | **EBITDA attributable to stockholders** | **$53,837** | **$29,544** | Reconciliation of EBITDA to Net Cash from Operating Activities (in thousands USD) | Item | Fiscal 2022 | Fiscal 2021 | |:---------------------------------------------|:------------|:------------| | EBITDA | $51,299 | $29,504 | | Current income tax (expense) benefit | $(11,564) | $6,571 | | Stock compensation expense | $3,459 | $2,938 | | Impairment loss | $7,901 | $0 | | Other non-cash items | $6,196 | $2,461 | | (Increase) decrease in accounts receivable | $(480) | $8,463 | | Increase in other assets | $(241) | $(11,467) | | (Decrease) increase in accounts payable and accrued expenses | $(5,742) | $31,442 | | Change in contracts in progress, net | $(22,413) | $106,101 | | **Net cash provided by operating activities**| **$28,415** | **$176,013**| [Critical Accounting Policies and Estimates](index=85&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Argan's critical accounting policies involve significant estimates for revenue recognition on long-term contracts, income tax reporting, goodwill valuation, and legal contingencies, requiring careful judgment and subject to material revisions - Critical accounting policies include revenue recognition on long-term construction contracts, income tax reporting, goodwill valuation, and financial reporting for significant claims or legal matters, as well as special purpose entities[800](index=800&type=chunk) - Revenue from fixed-price contracts is recognized over time using the percentage-of-completion method, based on costs incurred and estimated total contract costs, with inaccuracies potentially leading to material revisions[802](index=802&type=chunk)[806](index=806&type=chunk)[807](index=807&type=chunk) - Goodwill is tested annually for impairment by comparing the fair value of reporting units (estimated using market and income-based approaches) to their carrying amounts, with TRC's fair value exceeding its carrying value by **$8.9 million** as of November 1, 2021[815](index=815&type=chunk)[816](index=816&type=chunk) - Uncertain income tax positions, particularly for research and development tax credits, are recognized if they meet a 'more-likely-than-not' threshold, with the IRS challenging **$16.2 million in R&D tax credit benefits** for Fiscal 2016-2018, for which a **$5.0 million liability** is maintained[821](index=821&type=chunk)[822](index=822&type=chunk)[823](index=823&type=chunk)[826](index=826&type=chunk) - Deferred tax assets, including those from NOLs, are assessed for realization based on the generation of sufficient future taxable income, with a **$7.1 million valuation allowance** established against APC's U.K. NOL in Fiscal 2020[827](index=827&type=chunk)[828](index=828&type=chunk)[830](index=830&type=chunk) - The company recorded a **$7.9 million impairment loss** in Fiscal 2022 related to project development costs of a Variable Interest Entity (Chickahominy Power Station) that was ultimately cancelled[831](index=831&type=chunk) - A significant legal matter with Exelon was settled in Fiscal 2022, resulting in a **$27.5 million payment** to GPS, with the excess over recorded receivables recognized as revenue[833](index=833&type=chunk)[834](index=834&type=chunk)[835](index=835&type=chunk) [ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=95&type=section&id=ITEM%207A.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) Argan's market risks primarily involve interest rate fluctuations and commodity price volatility, managed through early procurement for fixed-price contracts, with no outstanding borrowings under its LIBOR-based credit facility and no material impact expected from LIBOR discontinuation - The company's results are subject to interest rate fluctuations, but it had no outstanding borrowings under its **$50.0 million LIBOR-based revolving loan facility** as of January 31, 2022[838](index=838&type=chunk) - The discontinuation of LIBOR is not expected to have significant effects on the company's financial arrangements or reporting[839](index=839&type=chunk) Hypothetical Impact of Interest Rate Changes (in thousands USD) | Basis Point Change | Interest Income | Interest Expense | Net Income (pre-tax) | |:-------------------|:----------------|:-----------------|:---------------------| | Up 300 basis points| $7,520 | $0 | $7,520 | | Up 200 basis points| $5,013 | $0 | $5,013 | | Up 100 basis points| $2,507 | $0 | $2,507 | | Down 7 basis points| $(146) | $0 | $(146) | - The company is exposed to foreign currency translation effects from APC's operations (Euros to U.S. dollars), recognized in accumulated other comprehensive income (loss)[840](index=840&type=chunk) - Commodity price risks (steel, copper, concrete, fuel) for fixed-price contracts are managed by securing firm quotes and early procurement of materials, and have not meaningfully impacted profitability despite global supply chain disruptions[841](index=841&type=chunk)[842](index=842&type=chunk)[843](index=843&type=chunk) [ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA](index=96&type=section&id=ITEM%208.%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents Argan's audited consolidated financial statements for Fiscal 2022, 2021, and 2020, with an unqualified opinion from Grant Thornton LLP, highlighting revenue recognition for fixed-price contracts as a critical audit matter - Grant Thornton LLP, the independent registered public accounting firm, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of January 31, 2022[867](index=867&type=chunk)[868](index=868&type=chunk)[879](index=879&type=chunk) - Revenue recognition for fixed-price contracts was identified as a critical audit matter due to the complex and subjective nature of estimating total contract revenues and projected costs[871](index=871&type=chunk)[872](index=872&type=chunk)[873](index=873&type=chunk) [Reports of Grant Thornton LLP, Independent Registered Public Accounting Firm](index=105&type=section&id=Reports%20of%20Grant%20Thornton%20LLP%2C%20Independent%20Registered%20Public%20Accounting%20Firm) Grant Thornton LLP issued an unqualified opinion on Argan's Fiscal 2022 financial statements and internal controls, identifying revenue recognition for fixed-price contracts as a critical audit matter - Grant Thornton LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting for the fiscal year ended January 31, 2022[867](index=867&type=chunk)[868](index=868&type=chunk)[879](index=879&type=chunk) - Revenue recognition for fixed-price contracts was deemed a critical audit matter due to the complexity and subjectivity of management's estimates for total contract revenues and projected costs[871](index=871&type=chunk)[872](index=872&type=chunk)[873](index=873&type=chunk) [Consolidated Statements of Earnings](index=110&type=section&id=Consolidated%20Statements%20of%20Earnings) Argan reported **net income of $38.2 million ($2.40 diluted EPS)** in Fiscal 2022, a significant increase from Fiscal 2021 and a turnaround from a **$42.7 million net loss** in Fiscal 2020, with revenues growing to **$509.4 million** Consolidated Statements of Earnings (in thousands USD, except per share data) | Metric | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |:---------------------------------------------|:------------|:------------|:------------| | Revenues | $509,370 | $392,206 | $238,997 | | Cost of revenues | $409,638 | $330,139 | $245,817 | | Gross Profit (Loss) | $99,732 | $62,067 | $(6,820) | | Selling, general and administrative expenses | $47,321 | $39,041 | $44,125 | | Impairment losses | $7,901 | $0 | $4,895 | | Income (Loss) From Operations | $44,510 | $23,026 | $(55,840) | | Other income, net | $2,552 | $1,859 | $8,075 | | Income (Loss) Before Income Taxes | $47,062 | $24,885 | $(47,765) | | Income tax (expense) benefit | $(11,356) | $(1,074) | $7,053 | | Net Income (Loss) | $35,706 | $23,811 | $(40,712) | | Net (loss) income attributable to non-controlling interests | $(2,538) | $(40) | $1,977 | | Net Income (Loss) Attributable to Stockholders | $38,244 | $23,851 | $(42,689) | | Diluted EPS | $2.40 | $1.51 | $(2.73) | | Basic EPS | $2.43 | $1.52 | $(2.73) | | Cash Dividends Per Share | $1.00 | $3.00 | $1.00 | [Consolidated Balance Sheets](index=111&type=section&id=Consolidated%20Balance%20Sheets) As of January 31, 2022, total assets decreased to **$553.6 million**, current assets to **$507.3 million**, and total liabilities to **$228.0 million** (due to reduced contract liabilities), while total equity slightly increased to **$325.6 million** Consolidated Balance Sheets (in thousands USD) | Asset/Liability/Equity | Jan 31, 2022 | Jan 31, 2021 | |:---------------------------------|:-------------|:-------------| | **ASSETS** | | | | Cash and cash equivalents | $350,472 | $366,671 | | Short-term investments | $90,026 | $90,055 | | Accounts receivable, net | $26,978 | $28,713 | | Contract assets | $4,904 | $26,635 | | Other current assets | $34,904 | $34,146 | | TOTAL CURRENT ASSETS | $507,284 | $546,220 | | Property, plant and equipment, net | $10,460 | $20,361 | | Goodwill | $28,033 | $27,943 | | Other purchased intangible assets, net | $3,322 | $4,097 | | Deferred taxes, net | $457 | $249 | | Right-of-use and other assets | $4,029 | $3,760 | | TOTAL ASSETS | **$553,585** | **$602,630** | | **LIABILITIES AND EQUITY** | | | | Accounts payable | $41,822 | $53,295 | | Accrued expenses | $53,315 | $50,750 | | Contract liabilities | $127,890 | $172,042 | | TOTAL CURRENT LIABILITIES | $223,027 | $276,087 | | Other noncurrent liabilities | $4,963 | $4,135 | | TOTAL LIABILITIES | **$227,990** | **$280,222** | | TOTAL EQUITY | **$325,595** | **$322,408** | [Consolidated Statements of Stockholders' Equity](index=113&type=section&id=Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total equity increased to **$325.6 million** as of January 31, 2022, driven by **$38.2 million net income** and **$3.5 million stock compensation**, partially offset by **$20.4 million in repurchases** and **$15.7 million in dividends** Consolidated Statements of Stockholders' Equity (in thousands USD) | Item | Feb 1, 2019 | Jan 31, 2020 | Jan 31, 2021 | Jan 31, 2022 | |:-----------------------------------|:------------|:-------------|:-------------|:-------------| | Total Equity | $394,372 | $341,030 | $322,408 | $325,595 | | Net (loss) income | | $(40,712) | $23,811 | $35,706 | | Foreign currency translation (loss) gain | $(770) | $(770) | $35 | $(1,370) | | Stock compensation expense | | $2,131 | $2,938 | $3,459 | | Stock option exercises | $1,630 | $1,630 | $1,641 | $1,428 | | Cash dividends | | $(15,621) | $(47,047) | $(15,664) | | Common stock repurchases | | | | $(20,372) | | Non-controlling interests | $(196) | $1,781 | $1,741 | $(797) | [Consolidated Statements of Cash Flows](index=114&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities significantly decreased to **$28.4 million** in Fiscal 2022, while investing activities used **$7.0 million** and financing activities used **$34.6 million**, primarily for share repurchases and dividends Consolidated Statements of Cash Flows (in thousands USD) | Cash Flow Activity | Fiscal 2022 | Fiscal 2021 | Fiscal 2020 | |:-----------------------------------|:------------|:------------|:------------| | Net cash provided by operating activities | $28,415 | $176,013 | $53,565 | | Net cash (used in) provided by investing activities | $(7,038) | $66,970 | $(36,058) | | Net cash used in financing activities | $(34,608) | $(45,406) | $(13,991) | | Effects of exchange rate changes on cash | $(2,968) | $1,731 | $(471) | | Net (decrease) increase in cash and cash equivalents | $(16,199) | $199,308 | $3,045 | | Cash and cash equivalents, end of period | $350,472 | $366,671 | $167,363 | - The dec

Financial Performance - Consolidated revenues for the three months ended July 31, 2021, were $133.0 million, an increase of $45.5 million, or 52.0%, from $87.5 million for the same period in 2020[110]. - Consolidated revenues for the six months ended July 31, 2021, were $259.3 million, a 75.7% improvement from the same period in 2020[114]. - Net income attributable to stockholders for the three months ended July 31, 2021, was $12.9 million, or $0.81 per diluted share, up from $5.6 million, or $0.36 per diluted share in 2020[113]. - Net income for the six months ended July 31, 2021, was reported at $23,636 million, a significant increase from $4,806 million in the same period of 2020, representing a growth of approximately 392%[196]. - EBITDA for the six months ended July 31, 2021, was $33,789 million, compared to $4,058 million for the same period in 2020, indicating an increase of about 733%[198]. Revenue Segmentation - Revenues from the power industry services segment increased by $30.0 million to $99.0 million, representing 74.4% of consolidated revenues for the three months ended July 31, 2021, down from 78.9% in 2020[111]. - The industrial services business reported revenues of $56.8 million for the six months ended July 31, 2021, an increase of $30.4 million, or 114.9%, from $26.4 million in 2020[114]. - Revenues for the power industry services segment increased by 66.7%, or $78.5 million, to $196.2 million for the six months ended July 31, 2021, representing approximately 75.6% of consolidated revenues[166]. - Telecommunications infrastructure services revenues reached $6.4 million for the six months ended July 31, 2021, compared to $3.6 million for the same period in 2020[169]. Profitability Metrics - Consolidated gross profit for the three months ended July 31, 2021, was $27.7 million, or 20.8% of revenues, compared to $15.6 million, or 17.9% in 2020[112]. - The consolidated gross profit for the six months ended July 31, 2021, was approximately $51.4 million, representing a gross profit percentage of 19.8%, up from 13.3% in the prior year[171][172]. - Selling, General and Administrative Expenses were $20.2 million for the six-month period ended July 31, 2021, representing 7.8% of consolidated revenues, a decrease from 13.2% in the previous year[173]. Project Backlog and Contracts - Project backlog for the power industry services segment was approximately $0.7 billion as of July 31, 2021, down from $0.8 billion in January 2021[120]. - The aggregate rated electrical output for signed EPC services contracts is approximately 6.4 gigawatts, with an initial contract value of approximately $3.0 billion and an unrealized contract value of approximately $2.5 billion as of July 31, 2021[125]. - GPS entered into an EPC services contract with CPV Maple Hill Solar, LLC to construct the Maple Hill Solar facility, expected to generate approximately 100 MW of electrical power, with completion scheduled for the second half of calendar year 2022[127]. Cash Flow and Liquidity - Cash and cash equivalents as of July 31, 2021, were $451.4 million, an increase from $366.7 million as of January 31, 2021[180]. - Net cash provided by operating activities for the six months ended July 31, 2021, was $47.2 million, with net income adjusted for non-cash items contributing $30.6 million[181]. - The company had no outstanding borrowings under its financing arrangements as of July 31, 2021, with a maximum borrowing capacity of $50 million available until May 31, 2024[202]. Market and Economic Conditions - The first capacity auction conducted by PJM in over three years cleared over 5.6 GW of new combined cycle, gas-fired power plants, representing over 75% of all new capacity units[129]. - Natural gas-fired power plants accounted for approximately 39% of electricity generated by utility-scale power plants in the US in 2020, a 64% increase from 2010[134]. - The EIA projects that coal-fired generation will decline to only 11% of the electricity generation mix by 2050, while natural gas-fired plants are expected to supply 36% of net electricity generation[134]. - The share of electricity generation from renewable sources is projected to increase by more than 175%, reaching over 42% by 2050 according to the EIA[138]. Strategic Initiatives - The company plans to pursue additional acquisitions and investments to enhance profitable growth and synergies with existing businesses[109]. - The company plans to adopt integrated green hydrogen solutions in two of its contracted natural gas-fired power plant projects, enhancing power-generation flexibility[144]. Tax and Regulatory Matters - Income tax expense for the three months ended July 31, 2021, was approximately $4.2 million, with an effective income tax rate of 24.6%[161]. - Income tax expense for the six-month period ended July 31, 2021, was approximately $8.0 million, with an effective tax rate of 25.2%, compared to an income tax benefit of $3.1 million in the same period last year[177][178]. Risk Management - The company is subject to fluctuations in commodity prices, including steel, copper, concrete, and fuel, which may impact its results due to the fixed-price nature of many contracts[205]. - The company has not entered into derivative financial instruments for trading or speculation purposes, thus avoiding additional market risk exposure[202]. - The transition from LIBOR to alternative reference rates is expected to have minimal effects on the company's financial arrangements[203]. - The company may mitigate material cost risks by procuring equipment and construction supplies early in project phases, particularly for major fixed-price contracts[207].

Part I - Financial Information [Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited condensed consolidated financial statements for the quarter ended April 30, 2021, showing significant revenue growth, a shift to net income, and strong liquidity Condensed Consolidated Statements of Earnings (Unaudited) | Financial Metric | Three Months Ended April 30, 2021 | Three Months Ended April 30, 2020 | | :--- | :--- | :--- | | **Revenues** | $126,341 thousand | $60,148 thousand | | **Gross Profit** | $23,714 thousand | $4,009 thousand | | **Income (Loss) from Operations** | $13,822 thousand | $(6,335) thousand | | **Net Income (Loss) Attributable to Stockholders** | $10,766 thousand | $(763) thousand | | **Diluted EPS** | $0.67 | $(0.05) | Condensed Consolidated Balance Sheet Highlights | Account | April 30, 2021 (Unaudited) | January 31, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $559,031 thousand | $546,220 thousand | | **Total Assets** | $617,972 thousand | $602,630 thousand | | **Total Current Liabilities** | $283,065 thousand | $276,087 thousand | | **Total Liabilities** | $287,156 thousand | $280,222 thousand | | **Total Equity** | $330,816 thousand | $322,408 thousand | Condensed Consolidated Statements of Cash Flows (Unaudited) | Cash Flow Activity | Three Months Ended April 30, 2021 | Three Months Ended April 30, 2020 | | :--- | :--- | :--- | | **Net Cash from Operating Activities** | $17,346 thousand | $40,187 thousand | | **Net Cash from Investing Activities** | $15,636 thousand | $59,316 thousand | | **Net Cash from Financing Activities** | $(2,919) thousand | $(3,733) thousand | | **Cash and Cash Equivalents, End of Period** | $396,675 thousand | $262,927 thousand | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail accounting policies, business segments, revenue recognition, customer concentrations, segment performance, and significant legal and tax matters - The company operates through **four main subsidiaries** (GPS, TRC, APC, SMC), grouped into **three reportable segments**[21](index=21&type=chunk)[209](index=209&type=chunk) - As of April 30, 2021, Remaining Unsatisfied Performance Obligations (RUPO) totaled **$478.7 million**, with approximately **58%** expected to be recognized as revenue by January 31, 2022[44](index=44&type=chunk)[232](index=232&type=chunk) - An ongoing lawsuit with Exelon involves **$24.5 million** in accounts receivable and contract assets related to a terminated EPC contract, with mediation scheduled for September 2021[52](index=52&type=chunk)[69](index=69&type=chunk)[240](index=240&type=chunk) - The company is under IRS examination for **R&D tax credits** claimed for **FY2016**, **FY2017**, and **FY2018**, with protests filed for the first two years and a favorable resolution expected[90](index=90&type=chunk)[278](index=278&type=chunk) Segment Performance for Three Months Ended April 30, 2021 (in thousands) | Segment | Revenues | Gross Profit | Income (Loss) from Operations | | :--- | :--- | :--- | :--- | | **Power Services** | $97,172 | $18,503 | $13,048 | | **Industrial Services** | $26,658 | $4,689 | $2,807 | | **Telecom Services** | $2,511 | $522 | $36 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the 110.1% revenue growth driven by Power Industry Services, a $0.7 billion project backlog, market outlook for energy transition, and strong liquidity with $396.7 million cash and a $50 million credit facility [Operating Results](index=23&type=section&id=Operating%20Results) Consolidated revenues surged 110.1% to $126.3 million, primarily driven by the Guernsey Power Station project, leading to a significant improvement in gross profit margin to 18.8% and a net income of $10.8 million Segment Revenue Comparison (in thousands) | Segment | Q1 2021 Revenue | Q1 2020 Revenue | % Change | | :--- | :--- | :--- | :--- | | **Power industry services** | $97,172 | $48,612 | 99.9% | | **Industrial fabrication and field services** | $26,658 | $9,744 | 173.6% | | **Telecommunications infrastructure services** | $2,511 | $1,792 | 40.1% | | **Total Revenues** | **$126,341** | **$60,148** | **110.1%** | - The **Guernsey Power Station project**, reaching peak construction, was the primary driver for improved performance, accounting for **67.8%** of consolidated revenues[142](index=142&type=chunk)[330](index=330&type=chunk) - Gross profit margin significantly improved to **18.8%** from **6.7%** in the prior-year quarter, which was adversely affected by a **$2.7 million** loss on the TeesREP project[109](index=109&type=chunk)[148](index=148&type=chunk)[297](index=297&type=chunk) - The company received a **$0.7 million R&D credit payment** from the UK government for the TeesREP project, recorded as other income[150](index=150&type=chunk)[338](index=338&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity strengthened with cash and equivalents reaching $396.7 million, supported by $17.3 million in operating cash flow and an extended $50.0 million credit facility - Cash and cash equivalents increased by **$30.0 million** during the quarter, reaching **$396.7 million** as of April 30, 2021[154](index=154&type=chunk)[342](index=342&type=chunk) - The Credit Agreement was extended to **May 31, 2024**, maintaining a **$50.0 million** lending commitment at a reduced interest rate of **30-day LIBOR plus 1.6%**[160](index=160&type=chunk)[348](index=348&type=chunk) - As of April 30, 2021, the company had approximately **$372 million** in unsatisfied bonded performance obligations and **$6.6 million** in other outstanding bonds[163](index=163&type=chunk)[351](index=351&type=chunk) EBITDA Reconciliation (in thousands) | Metric | Three Months Ended April 30, 2021 | Three Months Ended April 30, 2020 | | :--- | :--- | :--- | | **Net income (loss), as reported** | $10,766 | $(793) | | **Income tax expense (benefit)** | 3,768 | (4,454) | | **Depreciation** | 882 | 937 | | **Amortization of purchased intangible assets** | 228 | 225 | | **EBITDA** | **$15,644** | **$(4,085)** | [Market Outlook](index=26&type=section&id=Market%20Outlook) Management sees a favorable long-term outlook for natural gas-fired power plants for grid reliability, despite headwinds from political and regulatory pressures, and is diversifying into renewable and hydrogen-ready projects - The company is diversifying into **renewable energy**, evidenced by a new EPC services contract for the **Maple Hill Solar facility** in Pennsylvania[119](index=119&type=chunk)[307](index=307&type=chunk) - Headwinds for the gas-fired power plant market include increased **environmental activism**, regulatory initiatives like **RGGI**, and the **Biden administration's goal** for **carbon-free electricity by 2035**[122](index=122&type=chunk)[124](index=124&type=chunk)[125](index=125&type=chunk) - The company is positioning for a **flexible energy future** by contracting for natural gas-fired plants with integrated **green hydrogen solution packages**, enabling them to eventually burn a mix of **natural gas and hydrogen**[135](index=135&type=chunk)[323](index=323&type=chunk) - Recent **power crises in California and Texas** demonstrate that **fossil-fuel generation** remains critical for **grid reliability**[132](index=132&type=chunk)[133](index=133&type=chunk)[320](index=320&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks include interest rate fluctuations, foreign currency translation for its Irish subsidiary, and commodity price volatility, mitigated by early procurement and short-term quotes - The company faces **interest rate risk** on its cash and investments; a hypothetical **100 basis point increase** in rates would increase pre-tax income by approximately **$3.0 million** annually[178](index=178&type=chunk)[180](index=180&type=chunk)[366](index=366&type=chunk) - **Foreign currency risk** stems from translating the financial statements of its subsidiary **APC** from **Euros** into **US dollars**[178](index=178&type=chunk)[366](index=366&type=chunk) - The company faces **commodity price risk** for materials like **copper, concrete, and steel** on its **fixed-price contracts**, mitigated by including anticipated price changes in bids and early material procurement[179](index=179&type=chunk)[367](index=367&type=chunk) [Controls and Procedures](index=37&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of April 30, 2021, with no significant changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were **effective** as of **April 30, 2021**[181](index=181&type=chunk)[369](index=369&type=chunk) - **No significant changes** were made to the company's internal control over financial reporting during the fiscal quarter[182](index=182&type=chunk)[370](index=370&type=chunk) Part II - Other Information [Legal Proceedings](index=37&type=section&id=Item%201.%20Legal%20Proceedings) The company's primary legal proceeding, a lawsuit between its subsidiary GPS and Exelon, is detailed in Note 8, with other pending claims not expected to materially affect financial statements - The company's **main legal proceeding** is the lawsuit between its subsidiary **GPS and Exelon**, detailed in **Note 8** of the financial statements[183](index=183&type=chunk)[371](index=371&type=chunk) [Risk Factors](index=37&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K have been reported - There have been **no material changes** to the risk factors disclosed in the company's Annual Report[184](index=184&type=chunk)[372](index=372&type=chunk) [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) A stock repurchase plan for up to $25.0 million is authorized through June 2022, with no shares repurchased under the program to date - A stock repurchase plan for up to **$25.0 million** is authorized through **June 2022**, but **no purchases** have been made under it to date[184](index=184&type=chunk)[372](index=372&type=chunk)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) The financial statements for the period ended October 31, 2020, reflect a strong turnaround with increased revenues, net income, and strengthened liquidity [Condensed Consolidated Statements of Earnings](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Earnings) The earnings statement for the three and nine months ended October 31, 2020, shows strong revenue growth and a shift from net loss to net income Condensed Consolidated Statements of Earnings (in millions) | Financial Metric | Three Months Ended Oct 31, 2020 | Three Months Ended Oct 31, 2019 | Nine Months Ended Oct 31, 2020 | Nine Months Ended Oct 31, 2019 | | :--- | :--- | :--- | :--- | :--- | | **Revenues** | $127.3M | $58.4M | $275.0M | $171.0M | | **Gross Profit (Loss)** | $20.3M | $6.0M | $40.0M | $(12.1)M | | **Income (Loss) from Operations** | $10.9M | $(6.1)M | $11.2M | $(45.9)M | | **Net Income (Loss) Attributable to Stockholders** | $9.5M | $(6.9)M | $14.3M | $(35.5)M | | **Diluted EPS** | $0.60 | $(0.44) | $0.91 | $(2.27) | - The company declared and paid a quarterly cash dividend of **$0.25 per share** in Q3 2020, consistent with the prior year's quarter. For the nine-month period, total dividends per share were **$1.75** in 2020, significantly higher than the **$0.75** paid in the same period of 2019, due to a special dividend[6](index=6&type=chunk) [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of October 31, 2020, the balance sheet reflects robust liquidity, significant asset growth, and increased contract liabilities Condensed Consolidated Balance Sheets (in millions) | Balance Sheet Item | October 31, 2020 (Unaudited) | January 31, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $353.2M | $167.4M | | Total Current Assets | $538.8M | $421.8M | | Total Assets | $595.5M | $487.5M | | **Liabilities & Equity** | | | | Contract liabilities | $160.5M | $72.7M | | Total Current Liabilities | $261.0M | $144.0M | | Total Liabilities | $264.8M | $146.5M | | Total Stockholders' Equity | $328.9M | $339.2M | | Total Liabilities and Equity | $595.5M | $487.5M | [Condensed Consolidated Statements of Cash Flows](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the nine months ended October 31, 2020, operating cash flow significantly increased, driving a substantial rise in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (in millions) | Cash Flow Activity (Nine Months Ended Oct 31) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $142.6M | $15.9M | | Net cash provided by investing activities | $68.6M | $82.7M | | Net cash used in financing activities | $(26.2)M | $(10.1)M | | **Net Increase in Cash and Cash Equivalents** | **$185.9M** | **$88.2M** | | **Cash and Cash Equivalents, End of Period** | **$353.2M** | **$252.5M** | [Notes to Condensed Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes detail the company's business structure, revenue recognition, project performance, remaining obligations, and tax impacts - Argan operates through four wholly-owned subsidiaries: **Gemma Power Systems (GPS)**, **The Roberts Company (TRC)**, **Atlantic Projects Company (APC)**, and **Southern Maryland Cable (SMC)**, providing services to the power generation, industrial fabrication, and telecommunications markets[15](index=15&type=chunk) - The TeesREP Project, which previously caused significant losses, had favorable adjustments of **$2.8 million** and **$4.1 million** in the three and nine months ended October 31, 2020, respectively, due to contract amendments. The final fixed-price subcontract loss is now estimated at **$29.5 million**[40](index=40&type=chunk) - The company's Remaining Unsatisfied Performance Obligations (RUPO) stood at **$604.7 million** as of October 31, 2020. Approximately **63%** of this amount is expected to be recognized as revenue over the next twelve months[42](index=42&type=chunk) - The CARES Act allowed the company to carry back its Fiscal 2020 net operating loss of approximately **$39.5 million**, resulting in a tax benefit of about **$4.4 million** recorded in the nine months ended October 31, 2020[84](index=84&type=chunk)[85](index=85&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes strong Q3 2020 performance to power segment recovery, addressing market headwinds and maintaining strong liquidity [Summary of Operating Results](index=24&type=section&id=Summary%20of%20Operating%20Results) Consolidated revenues for Q3 2020 surged 118.0%, driven by the power segment, leading to a significant reversal from net loss to net income Summary of Operating Results (in millions) | Period | Consolidated Revenues | YoY Change | Net Income (Loss) Attributable to Stockholders | Diluted EPS | | :--- | :--- | :--- | :--- | :--- | | **Q3 2020** | $127.3M | +118.0% | $9.5M | $0.60 | | **Q3 2019** | $58.4M | - | $(6.9)M | $(0.44) | | **YTD 2020** | $275.0M | +60.8% | $14.3M | $0.91 | | **YTD 2019** | $171.0M | - | $(35.5)M | $(2.27) | [Major Customer Contracts and Market Outlook](index=28&type=section&id=Major%20Customer%20Contracts%20and%20Market%20Outlook) Project backlog stands at $1.2 billion, with new gas plant projects facing delays, while renewable energy efforts are expanding amid policy shifts - Project backlog was approximately **$1.2 billion** as of October 31, 2020, down slightly from **$1.3 billion** at January 31, 2020[141](index=141&type=chunk) - The **Guernsey Power Station** project is the primary driver of current revenues, with substantial completion scheduled for the end of calendar year 2022[135](index=135&type=chunk) - Challenges for new gas-fired power plant projects include difficulties in securing financing, delays in **PJM capacity auctions** (now rescheduled to begin **May 2021**), and growing public and political opposition to fossil-fuel projects, including potential policy changes from the president-elect[143](index=143&type=chunk)[147](index=147&type=chunk)[153](index=153&type=chunk) - The company is directing business development efforts toward **utility-scale wind, solar, and other renewable energy projects** to complement its natural gas EPC services[165](index=165&type=chunk) [Comparison of the Results of Operations](index=32&type=section&id=Comparison%20of%20the%20Results%20of%20Operations) Q3 2020 saw Power Industry Services revenue surge 206.0%, significantly improving consolidated gross profit margin and reversing prior-year losses Segment Revenues (Q3 2020 vs Q3 2019, in millions) | Segment Revenues (Q3 2020 vs Q3 2019) | Q3 2020 | Q3 2019 | % Change | | :--- | :--- | :--- | :--- | | Power industry services | $109.7M | $35.8M | 206.0% | | Industrial fabrication and field services | $15.7M | $20.1M | (21.9)% | | Telecommunications infrastructure services | $1.9M | $2.4M | (21.8)% | - Consolidated gross profit for Q3 2020 was **$20.3 million** (**16.0% margin**), a **239.5% increase** from **$6.0 million** (**10.3% margin**) in Q3 2019. The improvement was driven by the Guernsey project and favorable adjustments on the TeesREP project[170](index=170&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) - For the nine months ended October 31, 2019, the company reported a consolidated gross loss of **$12.1 million**, primarily due to a **$31.2 million loss** incurred by APC on the TeesREP Project. This was reversed in the 2020 period, which saw a gross profit of **$40.0 million**[191](index=191&type=chunk)[192](index=192&type=chunk) [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity significantly strengthened with cash and cash equivalents rising to $353.2 million, driven by strong operating cash flow and a maintained credit facility Liquidity and Capital Resources (in millions) | Metric | October 31, 2020 | January 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $353.2M | $167.4M | | Working Capital | $277.8M | $277.7M | - Net cash provided by operating activities for the nine months ended October 31, 2020 was **$142.6 million**, compared to **$15.9 million** in the prior year period[202](index=202&type=chunk)[206](index=206&type=chunk) - The company paid total cash dividends of **$27.4 million** and received **$1.2 million** from stock option exercises during the nine months ended October 31, 2020[205](index=205&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in a legal proceeding with Exelon, with no other material claims expected to impact financial statements - The company refers to **Note 8** for details on its legal dispute with **Exelon** regarding the breach of an EPC contract for a gas-fired power plant in Massachusetts[70](index=70&type=chunk)[240](index=240&type=chunk) [Item 1A. Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) New risks include potential adverse impacts from the incoming U.S. administration's climate policies and proposed corporate income tax rate increase - The company identifies potential adverse effects from the policies of **president-elect Biden**, particularly those concerning **climate change** and a proposed increase in the corporate income tax rate to **28%**[241](index=241&type=chunk)[242](index=242&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=44&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) A **$25.0 million** share repurchase plan was authorized in June 2020, with no shares repurchased to date under the program - A **$25.0 million** share repurchase plan was authorized in June 2020. To date, no purchases have been made under this plan[245](index=245&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of October 31, 2020, with no significant changes in internal control - The CEO and CFO concluded that as of October 31, 2020, the company's disclosure controls and procedures were **effective** at a reasonable assurance level[238](index=238&type=chunk) - **No significant changes** to internal control over financial reporting occurred during the fiscal quarter ended October 31, 2020[239](index=239&type=chunk)