Argan, Inc. (NYSE:AGX) Q1 2024 Earnings Conference Call June 8, 2023 5:00 PM ET Company Participants John Nesbitt - IMS, Investor Relations David Watson - President and Chief Executive Officer Richard Deily - Senior Vice President, Chief Financial Officer, Treasurer & Corporate Secretary Conference Call Participants Rob Brown - Lake Street Capital Markets Chris Moore - CJS Securities Operator Good evening, ladies and gentlemen, and welcome to the Argan Inc. Conference Call for First Quarter Fiscal 2024 Ende ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended April 30, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT For the Transition Period from to Commission File Number 001-31756 (Exact Name of Registrant as Specified in Its Charter) (State or Other Jurisdiction of Incorporation) (I.R.S. Employer Identificat ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the Fiscal Year Ended January 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to Commission File Number 001-31756 ARGAN, INC. (Exact Name of Registrant as Specified in its Charter) Indicate by check mark whether the Registrant (1) has file ...

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

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

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