Argan(US:AGX)2023-04-16 16:00PART I ITEM 1. BUSINESS Argan, Inc. operates through subsidiaries providing EPC services in power, industrial, and telecommunications infrastructure, focusing on project development, safety, and ESG - Argan, Inc. operates through wholly-owned subsidiaries GPS, APC, TRC, and SMC, providing services in power industry, industrial fabrication, and telecommunications infrastructure15 Consolidated Revenues by Segment (Fiscal 2021-2023) | Segment | Fiscal 2023 Revenue ($M) | Fiscal 2022 Revenue ($M) | Fiscal 2021 Revenue ($M) | Fiscal 2023 % of Total | Fiscal 2022 % of Total | Fiscal 2021 % of Total | | :-------------------------------- | :----------------------- | :----------------------- | :----------------------- | :--------------------- | :--------------------- | :--------------------- | | Power Industry Services | 346.0 | 398.1 | 319.4 | 76% | 78% | 81% | | Industrial Fabrication & Field Services | 92.8 | 97.9 | 65.3 | 20% | 19% | 17% | | Telecommunications Infrastructure Services | 16.2 | 13.4 | 7.6 | 4% | 3% | 2% | - The company's project backlog for the power industry services segment was approximately $0.7 billion at January 31, 2023, comparable to the previous year21 - Major active projects include the 1,875 MW Guernsey Power Station (expected completion Q3 Fiscal 2024), 950 MW Trumbull Energy Center (completion by end of Fiscal 2026), 2x330 MW Kilroot Power Station (completion by end of Fiscal 2024), three 65 MW ESB FlexGen Peaker Plants (completion by end of Fiscal 2024), and the 100 MW Maple Hill Solar facility (completion H2 Fiscal 2024)2427282930 - The company faces challenges in labor shortages, rising wages (up 5.3% YoY), and supply chain uncertainties, which may impact project commencement and revenues414248 - Argan maintains a $50.0 million credit agreement with Bank of America, N.A., amended in April 2021 and March 2023, with no outstanding borrowings but $8.8 million in letters of credit as of January 31, 2023737475 - The company's OSHA reportable incident rates were significantly better than the national average in its industry for calendar years 2018-2022, demonstrating a strong commitment to safety77 - An ESG subcommittee of the board of directors was formed in Fiscal 2021 and elevated to full committee status in Fiscal 2023 to support environmental, social, and governance initiatives81 ITEM 1A. RISK FACTORS Argan faces significant risks from economic downturns, project uncertainties, operational challenges, regulatory changes, and market competition - The majority of consolidated revenues (76% in Fiscal 2023) are from the power industry services segment, making future awards of utility-scale natural gas-fired and renewable energy EPC projects critical for revenue sustainability98100 - Project backlog, totaling $0.8 billion at January 31, 2023, is subject to uncertainty due to potential adjustments, delays, and cancellations, which could adversely affect future revenues and profits107110 - Unsuccessful project development efforts, such as the Chickahominy Power Station, can lead to significant write-offs, including an impairment loss of $7.9 million recorded in Fiscal 2022111113 - The company faces risks from fixed-price contracts, where cost overruns due to inaccurate estimates, supply chain disruptions, labor shortages, or unforeseen technical problems can reduce profits or lead to losses141142145 - Cybersecurity breaches pose a risk, as evidenced by a complex criminal scheme in March 2023 resulting in an anticipated $3.0 million pre-tax charge for unrecovered fraudulent wire transfers168 - Changes in tax laws, such as the Global Minimum Tax and the GILTI provision, could increase corporate taxes, and a 1% excise tax on stock repurchases (effective January 1, 2023) may alter future repurchase plans169170171173 ITEM 1B. UNRESOLVED STAFF COMMENTS The company reports that there are no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported189 ITEM 2. PROPERTIES Argan, Inc. and its subsidiaries occupy various owned and leased properties for corporate headquarters, industrial fabrication, and operational support - Corporate headquarters are leased in Rockville, Maryland, expiring May 31, 2024190 - GPS owns and occupies a 23,380 sq ft office building in Glastonbury, Connecticut190 - TRC owns a 90,000 sq ft industrial fabrication and warehouse facility in Winterville, North Carolina, and leases two additional offices191 - APC owns office space in Limerick, Ireland, and an operations support facility in Nenagh, Ireland, and leases office/warehouse space in the U.K192 - SMC leases facilities in Tracys Landing, Maryland, and Hampton, Virginia193 ITEM 3. LEGAL PROCEEDINGS The company refers to Note 11 for a discussion of legal proceedings, specifically a settlement in September 2021 - A discussion of legal proceedings, including a settlement in September 2021, is presented in Note 11196 - Management believes other current claims or proceedings will not materially affect consolidated financial statements196 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Argan, Inc.'s common stock trades on the NYSE under the symbol AGX, with consistent quarterly cash dividends and an active share repurchase program - Common stock trades on the NYSE under the symbol AGX, with approximately 57 stockholders of record as of April 10, 2023198 - Regular quarterly cash dividends of $0.25 per share have been paid since Fiscal 2019, totaling $1.00 per share annually; special cash dividends of $1.00 per share were also paid in July and December 2020199 - The share repurchase program was increased to $125 million in December 2022; in Fiscal 2023, 1,855,714 shares were repurchased for approximately $68.2 million at an average price of $36.77 per share187201202 Equity Compensation Plan Information (as of January 31, 2023) | Metric | Value | | :------------------------------------ | :------ | | Number of Securities Issuable under Outstanding Options | 1,439,668 | | Weighted Average Exercise Price of Outstanding Options | $43.84 | | Number of Securities Remaining Available for Future Awards | 188,879 | ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section analyzes Argan's Fiscal 2023 financial performance, noting decreased revenues and net income due to reduced project activity, while highlighting strong liquidity and critical accounting policies Consolidated Operating Results (Fiscal 2022 vs. Fiscal 2023) | Metric | Fiscal 2023 ($M) | Fiscal 2022 ($M) | Change ($M) | Change (%) | | :------------------------------------------ | :--------------- | :--------------- | :---------- | :--------- | | Revenues | 455.0 | 509.4 | (54.4) | (10.7)% | | Gross