Argan(AGX) - 2025 Q2 - Quarterly Results

Executive Summary Announcement and Overview Argan, Inc. announced its financial results for the second quarter of fiscal year 2025, ended July 31, 2024, reporting significant increases in consolidated revenues, net income, and EBITDA, reflecting strong business momentum - Argan, Inc. reported second quarter fiscal year 2025 results on September 5, 2024[1] Consolidated Financial Highlights The company experienced substantial growth in Q2 FY2025, with revenues increasing by 60.6% and net income by 42.5% year-over-year. For the six months ended July 31, 2024, revenues grew by 57.0% and net income by 75.3%. Project backlog also saw a significant increase Consolidated Financial Highlights (Q2 FY2025 vs. Q2 FY2024) | Metric | Q2 FY2025 ($ in thousands) | Q2 FY2024 ($ in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $227,015 | $141,349 | $85,666 | 60.6% | | Gross profit | $31,105 | $23,742 | $7,363 | 31.0% | | Gross margin % | 13.7 % | 16.8 % | (3.1)% | -18.5% | | Net income | $18,198 | $12,767 | $5,431 | 42.5% | | Diluted income per share | $1.31 | $0.94 | $0.37 | 39.4% | | EBITDA | $24,842 | $17,945 | $6,897 | 38.4% | | Cash dividends per share | $0.30 | $0.25 | $0.05 | 20.0% | Consolidated Financial Highlights (Six Months FY2025 vs. Six Months FY2024) | Metric | Six Months FY2025 ($ in thousands) | Six Months FY2024 ($ in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $384,697 | $245,024 | $139,673 | 57.0% | | Gross profit | $49,049 | $37,966 | $11,083 | 29.2% | | Gross margin % | 12.8 % | 15.5 % | (2.7)% | -17.4% | | Net income | $26,080 | $14,876 | $11,204 | 75.3% | | Diluted per share | $1.90 | $1.10 | $0.80 | 72.7% | | EBITDA | $36,732 | $21,594 | $15,138 | 70.1% | | Cash dividends per share | $0.60 | $0.50 | $0.10 | 20.0% | Key Balance Sheet and Operational Metrics (As of July 31, 2024 vs. January 31, 2024) | Metric | July 31, 2024 ($ in thousands) | January 31, 2024 ($ in thousands) | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Cash, cash equivalents and investments | $484,682 | $412,405 | $72,277 | 17.5% | | Net liquidity | $259,827 | $244,919 | $14,908 | 6.1% | | Project backlog | $1,035,000 | $757,000 | $278,000 | 36.7% | CEO Commentary and Business Outlook The CEO highlighted continued business momentum in fiscal 2025, with Q2 revenues up 61% and the highest quarterly EBITDA since 2017. Strong performance was noted from Gemma Power Systems in renewables and The Roberts Company with record quarterly revenues. The company's backlog reached $1.0 billion, driven by increasing electrical power demands from data centers, manufacturing onshoring, and EV expansion, positioning Argan well for future growth in energy facility construction - Consolidated revenues increased by 61% to $227 million in Q2, with net income of $18.2 million and EBITDA of approximately $25 million, marking the highest quarterly EBITDA since 2017[3] - Gemma Power Systems showed strong performance and sustained growth in the renewable market, while The Roberts Company achieved record quarterly revenues of almost $50 million[3] - Project backlog closed at $1.0 billion, an increase of approximately $210 million from the previous quarter, including $570 million in renewable projects[4] - Key drivers for increasing electrical power demands and new business opportunities include high energy demand data centers, onshoring of manufacturing operations, and expansion of electric vehicle use[4] Second Quarter Fiscal 2025 Performance Revenues Consolidated revenues for Q2 FY2025 significantly increased by 60.6% year-over-year, driven by progress on projects like Trumbull Energy Center, Midwest Solar and Battery Projects, and Louisiana LNG Facility, partially offset by the completion or near-completion of other projects - Consolidated revenues for Q2 FY2025 were $227.0 million, an increase of $85.7 million (60.6%) from $141.3 million in the comparable prior year quarter[5] - Increased revenues were attributed to projects such as the Trumbull Energy Center, Midwest Solar and Battery Projects, 405 MW Midwest Solar Project, and the Louisiana LNG Facility[5] - Revenue growth was partially offset by decreased construction revenues from projects nearing completion, including Guernsey Power Station, Shannonbridge Power Project, ESB FlexGen Peaker Plants, and Kilroot power facility[5] Gross Profit and Margin Consolidated gross profit for Q2 FY2025 increased to $31.1 million, but the gross margin percentage declined to 13.7% from 16.8% in the prior year, reflecting a changing mix of projects and contract types - Consolidated gross profit for Q2 FY2025 was approximately $31.1 million, or 13.7% of consolidated revenues[6] - This compares to a gross profit of $23.7 million, or 16.8% of consolidated revenues, in Q2 FY2024[6] - The decline in gross profit percentage reflects the changing mix of projects and contract types[6] Operating Expenses (SG&A) Selling, general and administrative (SG&A) expenses increased in absolute terms but decreased as a percentage of revenues in Q2 FY2025, indicating improved operational leverage - SG&A expenses increased by $1.9 million to $12.4 million in Q2 FY2025 from $10.5 million in Q2 FY2024[7] - As a percentage of revenues, SG&A expenses declined to 5.5% in Q2 FY2025 from 7.4% in Q2 FY2024[7] Other Income and Income Tax Expense Other income, net, for Q2 FY2025 was $5.6 million, primarily from invested funds. Income tax expense increased due to higher pre-tax book income - Other income, net, for Q2 FY2025 was $5.6 million, including approximately $4.8 million from invested funds[8] - Income tax expense for Q2 FY2025 was $6.1 million on consolidated pre-tax book income of $24.3 million, compared to $4.6 million on $17.4 million in Q2 FY2024[8] Net Income and EBITDA Argan achieved significant increases in net income and EBITDA for Q2 FY2025, reflecting enhanced profitability - Net income for Q2 FY2025 was $18.2 million, or $1.31 per diluted share, up from $12.8 million, or $0.94 per diluted share, in Q2 FY2024[9] - EBITDA for Q2 FY2025 increased to $24.8 million, compared to $17.9 million in Q2 FY2024[9] Financial Position and Liquidity Argan maintained a strong financial position with substantial cash, cash equivalents, and investments, along with healthy net liquidity and no debt as of July 31, 2024 - Total cash, cash equivalents, and investments were $484.7 million as of July 31, 2024, up from $412.4 million as of January 31, 2024[10] - Net liquidity stood at $259.8 million at July 31, 2024, compared to $244.9 million at January 31, 2024[10] - The Company reported no debt[10] First Six Months Fiscal 2025 Performance Revenues Consolidated revenues for the first six months of FY2025 increased significantly by 57.0% compared to the prior year period - Consolidated revenues for the six months ended July 31, 2024, were $384.7 million, an increase of $139.7 million (57.0%) from $245.0 million in the comparable prior year period[11] Gross Profit and Margin For the first six months of FY2025, consolidated gross profit increased, but the gross margin percentage declined due to a changing project mix and losses related to the Kilroot project - Consolidated gross profit for the six months ended July 31, 2024, increased to approximately $49.0 million, with a consolidated gross margin of 12.8%[12] - This compares to a gross profit of $38.0 million, or 15.5% gross margin, for the six months ended July 31, 2023[12] - The gross margin was adversely impacted by losses related to the Kilroot project and the changing mix of projects and contract types[12] Operating Expenses (SG&A) SG&A expenses increased in absolute terms for the first six months of FY2025 but decreased as a percentage of revenues, demonstrating improved efficiency - SG&A expenses increased by $2.8 million to $23.9 million for the six months ended July 31, 2024, from $21.1 million in the comparable prior year period[13] - As a percentage of revenues, these expenses declined to 6.2% from 8.6% between the periods[13] Other Income and Income Tax Expense Other income, net, for the first six months of FY2025 was $10.4 million, primarily from invested funds. Income tax expense increased due to higher pre-tax book income - Other income, net, for the six months ended July 31, 2024, was $10.4 million, primarily from invested funds[14] - Income tax expense for the six months ended July 31, 2024, was $9.5 million on consolidated pre-tax book income of $35.6 million, compared to $5.5 million on $20.4 million in the prior year[14] Net Income and EBITDA Argan reported substantial growth in net income and EBITDA for the first six months of FY2025, reflecting strong overall performance - Net income for the six months ended July 31, 2024, was $26.1 million, or $1.90 per diluted share, up from $14.9 million, or $1.10 per diluted share, in the comparable prior year period[15] - EBITDA for the six months ended July 31, 2024, was $36.7 million, compared to $21.6 million in the same period last year[15] Company Information and Disclosures About Argan (Business Description) Argan's core business involves providing construction and related services to the power industry, specializing in natural gas-fired and renewable energy facilities through its subsidiaries Gemma Power Systems and Atlantic Projects Company. It also includes The Roberts Company for industrial construction and SMC Infrastructure Solutions for telecommunications - Argan's primary business is providing a full range of construction and related services to the power industry[18] - Service offerings include engineering, procurement, and construction of natural gas-fired power plants and renewable energy facilities, along with commissioning, maintenance, project development, and technical consulting services[18] - Key operating subsidiaries are Gemma Power Systems, Atlantic Projects Company, The Roberts Company (industrial construction, fabrication, plant services), and SMC Infrastructure Solutions (telecommunications infrastructure services)[18][19] Non-GAAP Financial Measures The company uses EBITDA as a non-GAAP financial measure to supplement understanding of its ongoing operating results, excluding the effects of capital structure, depreciation, amortization, and tax rates, and provides a reconciliation to comparable GAAP measures - EBITDA is presented as a non-GAAP financial measure to supplement the understanding of Argan's ongoing operating results[20] - This measure excludes the effects of capital structure, depreciation, amortization, and tax rates[20] - Reconciliation of non-GAAP financial measures to comparable GAAP measures is provided in the financial tables[20] Safe Harbor Statement The report contains forward-looking statements subject to risks and uncertainties, including the successful addition of new contracts, project completion, and mitigation of losses, as detailed in the company's SEC filings - The press release contains forward-looking statements subject to federal securities laws[21] - Future financial performance is subject to risks and uncertainties, including successful contract additions, receipt of notices to proceed, ability to complete projects, and mitigating losses from the Kilroot contract[21] - Actual results may differ materially from projections due to risk factors described in the Company's SEC filings (Form 10-K, 10-Q)[21] Conference Call and Investor Contacts Argan hosted an investor conference call and webcast on September 5, 2024, with replay options available, and provided contact information for company and investor relations inquiries - Argan hosted a conference call and webcast for investors on September 5, 2024, at 5:00 p.m. ET[16] - A replay of the teleconference is available until September 19, 2024, and a webcast replay until September 5, 2025[17] - Contact information for David Watson (Company Contact) and IMS Investor Relations (John Nesbett/Jennifer Belodeau) is provided[22] Condensed Consolidated Financial Statements Statements of Earnings The Condensed Consolidated Statements of Earnings provide detailed financial performance for the three and six months ended July 31, 2024, and 2023, showing revenues, cost of revenues, gross profit, operating expenses, other income, income tax expense, and net income Condensed Consolidated Statements of Earnings (Three Months Ended July 31) | Metric (In thousands, except per share data) | 2024 | 2023 | | :--- | :--- | :--- | | REVENUES | $227,015 | $141,349 | | Cost of revenues | 195,910 | 117,607 | | GROSS PROFIT | 31,105 | 23,742 | | Selling, general and administrative expenses | 12,428 | 10,501 | | INCOME FROM OPERATIONS | 18,677 | 13,241 | | Other income, net | 5,604 | 4,118 | | INCOME BEFORE INCOME TAXES | 24,281 | 17,359 | | Income tax expense | 6,083 | 4,592 | | NET INCOME | 18,198 | 12,767 | | Basic Net Income Per Share | $1.36 | $0.95 | | Diluted Net Income Per Share | $1.31 | $0.94 | | Cash Dividends Per Share | $0.30 | $0.25 | Condensed Consolidated Statements of Earnings (Six Months Ended July 31) | Metric (In thousands, except per share data) | 2024 | 2023 | | :--- | :--- | :--- | | REVENUES | $384,697 | $245,024 | | Cost of revenues | 335,648 | 207,058 | | GROSS PROFIT | 49,049 | 37,966 | | Selling, general and administrative expenses | 23,853 | 21,092 | | INCOME FROM OPERATIONS | 25,196 | 16,874 | | Other income, net | 10,398 | 3,489 | | INCOME BEFORE INCOME TAXES | 35,594 | 20,363 | | Income tax expense | 9,514 | 5,487 | | NET INCOME | 26,080 | 14,876 | | Basic Net Income Per Share | $1.96 | $1.11 | | Diluted Net Income Per Share | $1.90 | $1.10 | | Cash Dividends Per Share | $0.60 | $0.50 | Balance Sheets The Condensed Consolidated Balance Sheets present the company's financial position as of July 31, 2024, and January 31, 2024, detailing assets, liabilities, and stockholders' equity Condensed Consolidated Balance Sheets (As of July 31, 2024 vs. January 31, 2024) | Metric (Dollars in thousands) | July 31, 2024 | January 31, 2024 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $232,685 | $197,032 | | Investments | 251,997 | 215,373 | | Accounts receivable, net | 95,315 | 47,326 | | Contract assets | 46,086 | 48,189 | | Other current assets | 48,871 | 39,259 | | TOTAL CURRENT ASSETS | 674,954 | 547,179 | | Property, plant and equipment, net | 12,098 | 11,021 | | Goodwill | 28,033 | 28,033 | | Intangible assets, net | 2,022 | 2,217 | | Deferred taxes, net | 1,637 | 2,259 | | Right-of-use and other assets | 7,830 | 7,520 | | TOTAL ASSETS | $726,574 | $598,229 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Accounts payable | $99,693 | $39,485 | | Accrued expenses | 61,698 | 81,721 | | Contract liabilities | 253,736 | 181,054 | | TOTAL CURRENT LIABILITIES | 415,127 | 302,260 | | Noncurrent liabilities | 3,379 | 5,030 | | TOTAL LIABILITIES | 418,506 | 307,290 | | Common stock | 2,374 | 2,374 | | Additional paid-in capital | 165,902 | 164,183 | | Retained earnings | 243,519 | 225,507 | | Less treasury stock, at cost | (99,644) | (97,528) | | Accumulated other comprehensive loss | (4,083) | (3,597) | | TOTAL STOCKHOLDERS' EQUITY | 308,068 | 290,939 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $726,574 | $598,229 | Reconciliation to EBITDA The reconciliation table provides a breakdown of how EBITDA, a non-GAAP measure, is derived from net income for both the three and six months ended July 31, 2024, and 2023, by adding back income tax expense, depreciation, and amortization Reconciliation to EBITDA (Three Months Ended July 31) | Metric (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net income, as reported | $18,198 | $12,767 | | Income tax expense | 6,083 | 4,592 | | Depreciation | 463 | 488 | | Amortization of intangible assets | 98 | 98 | | EBITDA | $24,842 | $17,945 | Reconciliation to EBITDA (Six Months Ended July 31) | Metric (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net income, as reported | $26,080 | $14,876 | | Income tax expense | 9,514 | 5,487 | | Depreciation | 943 | 1,035 | | Amortization of intangible assets | 195 | 196 | | EBITDA | $36,732 | $21,594 |