Argan(AGX) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements 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 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] Condensed Consolidated Balance Sheets 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 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 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] - 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] - 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] - 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][85] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2020 performance to power segment recovery, addressing market headwinds and maintaining strong liquidity Summary of Operating Results 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 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] - The Guernsey Power Station project is the primary driver of current revenues, with substantial completion scheduled for the end of calendar year 2022[135] - 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][147][153] - 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] Comparison of the Results of Operations 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][176][177] - 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][192] Liquidity and Capital Resources 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][206] - 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] PART II - OTHER INFORMATION Item 1. Legal Proceedings 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][240] Item 1A. Risk Factors 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][242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 4. Controls and Procedures 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] - No significant changes to internal control over financial reporting occurred during the fiscal quarter ended October 31, 2020[239]