Argan(AGX) - 2024 Q2 - Quarterly Report

FORM 10-Q Cover Page Registrant Information This section provides key identifying information for Argan, Inc., including its state of incorporation, principal executive offices, and status as an accelerated filer. It also details the common stock listing and shares outstanding - Argan, Inc. is a Delaware corporation with its principal executive offices in Rockville, Maryland[2] - The company is classified as an 'accelerated filer' and is not a 'shell company'[3] Metric | Value | :-------------------------- | :-------------------- | | Common Stock Trading Symbol | AGX | | Exchange Listed On | New York Stock Exchange | | Shares Outstanding (Sep 1, 2023) | 13,318,653 shares | Part I. Financial Information Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Argan, Inc. and its subsidiaries for the periods ended July 31, 2023, and 2022, including statements of earnings, balance sheets, stockholders' equity, and cash flows, along with comprehensive notes Condensed Consolidated Statements of Earnings The Condensed Consolidated Statements of Earnings provide a summary of the company's financial performance for the three and six months ended July 31, 2023, compared to the same periods in 2022, highlighting significant increases in net income and diluted EPS Three Months Ended July 31 (in thousands, except per share data): | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | $141,349 | $118,110 | $23,239 | 19.7% | | Gross Profit | $23,742 | $24,387 | $(645) | -2.6% | | Income from Operations | $13,241 | $13,403 | $(162) | -1.2% | | Net Income | $12,767 | $4,222 | $8,545 | 202.4% | | Diluted EPS | $0.94 | $0.30 | $0.64 | 213.3% | Six Months Ended July 31 (in thousands, except per share data): | Metric | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------- | :------- | :------- | :--------- | :--------- | | Revenues | $245,024 | $218,387 | $26,637 | 12.2% | | Gross Profit | $37,966 | $44,125 | $(6,159) | -14.0% | | Income from Operations | $16,874 | $22,566 | $(5,692) | -25.2% | | Net Income | $14,876 | $11,707 | $3,169 | 27.1% | | Diluted EPS | $1.10 | $0.80 | $0.30 | 37.5% | Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets present the company's financial position as of July 31, 2023, and January 31, 2023, showing an increase in total assets and stockholders' equity, alongside a rise in total liabilities Balance Sheet Highlights (in thousands): | Metric | July 31, 2023 | January 31, 2023 | Change ($) | Change (%) | | :-------------------------- | :-------------- | :--------------- | :--------- | :--------- | | Total Current Assets | $455,132 | $438,702 | $16,430 | 3.7% | | Total Assets | $505,708 | $489,487 | $16,221 | 3.3% | | Total Current Liabilities | $215,606 | $202,503 | $13,103 | 6.5% | | Total Liabilities | $220,672 | $208,590 | $12,082 | 5.8% | | Total Stockholders' Equity | $285,036 | $280,897 | $4,139 | 1.5% | Condensed Consolidated Statements of Stockholders' Equity This statement outlines the changes in stockholders' equity for the three and six months ended July 31, 2023, and 2022, reflecting the impact of net income, stock compensation, share repurchases, and cash dividends Stockholders' Equity Changes (Six Months Ended July 31, 2023, in thousands): | Item | Amount | | :------------------------------------------ | :------- | | Balances, February 1, 2023 | $280,897 | | Net income | $14,876 | | Foreign currency translation gain | $255 | | Net unrealized losses on available-for-sale securities | $(720) | | Stock compensation expense | $2,218 | | Stock option exercises and other share-based award settlements | $947 | | Common stock repurchases | $(6,738) | | Cash dividends | $(6,699) | | Balances, July 31, 2023 | $285,036 | Condensed Consolidated Statements of Cash Flows The Condensed Consolidated Statements of Cash Flows detail the cash generated from or used in operating, investing, and financing activities for the six months ended July 31, 2023, and 2022, showing a significant net increase in cash and cash equivalents in 2023 Cash Flow Summary (Six Months Ended July 31, in thousands): | Activity | 2023 | 2022 | Change ($) | | :------------------------------------ | :------- | :-------- | :--------- | | Net cash provided by (used in) operating activities | $34,553 | $(56,776) | $91,329 | | Net cash provided by (used in) investing activities | $8,458 | $(85,638) | $94,096 | | Net cash used in financing activities | $(12,490) | $(60,294) | $47,804 | | Net increase (decrease) in cash and cash equivalents | $30,852 | $(207,128) | $237,980 | | Cash and cash equivalents, end of period | $204,799 | $143,344 | $61,455 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures supporting the condensed consolidated financial statements, covering business description, accounting policies, revenue recognition, investments, commitments, stock-based compensation, income taxes, and segment reporting NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION This note outlines Argan, Inc.'s operational structure through its subsidiaries, detailing its business segments in power industry services, industrial construction, and telecommunications infrastructure. It also covers the basis of financial statement presentation, significant accounting policies, and recent accounting pronouncements - Argan, Inc. operates through wholly-owned subsidiaries: Gemma Power Systems (GPS), The Roberts Company (TRC), Atlantic Projects Company (APC), and Southern Maryland Cable (SMC)[16] - Business segments include Power Industry Services (GPS & APC), Industrial Construction Services (TRC), and Telecommunications Infrastructure Services (SMC)[16] - The condensed consolidated financial statements are unaudited for interim periods and prepared under SEC rules, to be read in conjunction with the annual Form 10-K[18] - FASB issued ASU 2023-02 for tax equity investments, effective for fiscal years beginning after December 15, 2023; the Company's prior investments do not qualify[20] - Available-for-sale (AFS) securities are recorded at fair value, with unrealized gains and losses reported in accumulated other comprehensive loss. U.S. Treasury notes are classified as Level 2 in the fair value hierarchy[22][24][25] NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS This note details the Company's revenue recognition practices, which follow a five-step model for long-term construction contracts, primarily recognized over time. It also provides insights into contract assets, liabilities, retentions, variable consideration, and the disaggregation of revenues by geographic area - The Company recognizes revenues primarily from fixed-price and time-and-materials long-term construction contracts over time, based on costs incurred and estimated total contract costs[27][28] Revenues Recognized from Contract Liabilities (in millions): | Period | Amount | | :------------------------------------------ | :------- | | Six months ended July 31, 2023 | ~$87.0 | | Six months ended July 31, 2022 | ~$127.6 | | Three months ended July 31, 2023 | ~$64.7 | | Three months ended July 31, 2022 | ~$83.2 | Contract Retentions by Customers (in millions): | Date | Amount | | :---------------- | :------- | | July 31, 2023 | $28.1 | | January 31, 2023 | $49.1 | - Unapproved change orders included in transaction prices, pending customer approval, were $12.8 million at July 31, 2023, and $11.6 million at January 31, 2023[35] - Remaining Unsatisfied Performance Obligations (RUPO) totaled $0.7 billion at July 31, 2023, with approximately 37% expected to be recognized in revenues during the remainder of Fiscal 2024[41] Consolidated Revenues Disaggregated by Geographic Area (in thousands): | Geographic Area | Three Months Ended July 31, 2023 | Three Months Ended July 31, 2022 | Six Months Ended July 31, 2023 | Six Months Ended July 31, 2022 | | :---------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $80,281 | $93,949 | $147,800 | $174,221 | | Republic of Ireland | $48,075 | $15,532 | $70,656 | $25,186 | | United Kingdom | $12,993 | $8,629 | $26,568 | $18,980 | | Total | $141,349 | $118,110 | $245,024 | $218,387 | NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS This note details the Company's cash, cash equivalents, and investment portfolio, which includes short-term certificates of deposit (CDs) and available-for-sale (AFS) U.S. Treasury notes. It also addresses the concentration risk associated with these holdings - Cash and cash equivalents include investments in a money market fund, with accrued dividends of $0.6 million at July 31, 2023, up from $0.3 million at January 31, 2023[44] Total Investments (in thousands): | Type | July 31, 2023 | January 31, 2023 | | :---------------------- | :-------------- | :--------------- | | Short-term investments | $81,624 | $151,511 | | Available-for-sale securities | $59,992 | — | | Total investments | $141,616 | $151,511 | - Short-term investments, primarily CDs, saw their weighted average annual interest rates increase from 2.5% at January 31, 2023, to 5.3% at July 31, 2023[46] - AFS securities, consisting of U.S. Treasury notes, had net unrealized holding losses of approximately $0.7 million for both the three and six months ended July 31, 2023, reported in other comprehensive income[47] - The Company maintains substantial cash and investments with Bank of America and in money market funds, but management does not believe this concentration represents material risks[48] NOTE 4 – ACCOUNTS RECEIVABLE This note describes the Company's policy for extending credit to customers and its approach to monitoring and providing for credit losses on accounts receivable - The allowance for credit losses was $1.8 million at July 31, 2023, a slight decrease from $1.9 million at January 31, 2023. Provisions for credit losses were insignificant for the periods presented[49] NOTE 5 – INTANGIBLE ASSETS This note provides a breakdown of the Company's goodwill and other intangible assets, primarily associated with its industrial construction services segment - Goodwill balances remained consistent at $18.5 million for GPS and $9.5 million for TRC at both July 31, 2023, and January 31, 2023[50] Intangible Assets, Other Than Goodwill (July 31, 2023, in thousands): | Asset Type | Estimated Useful Life | Gross Amounts | Accumulated Amortization | Net | | :-------------------- | :-------------------- | :------------ | :----------------------- | :---- | | Trade names | 15 years | $4,499 | $2,300 | $2,199 | | Customer relationships | 10 years | $916 | $702 | $214 | | Totals | | $5,415 | $3,002 | $2,413 | NOTE 6 – FINANCING ARRANGEMENTS This note details the Company's Credit Agreement with Bank of America, including its recent amendment to update interest pricing, its borrowing capacity, and the Company's compliance with financial covenants - The Credit Agreement was amended on March 6, 2023, to replace interest pricing with SOFR plus 1.6% and extend the expiration date to May 31, 2024[52] - The agreement provides a $50.0 million lending commitment, including a revolving loan and a $10.0 million accordion feature[52] - No borrowings were outstanding under the Credit Agreement at July 31, 2023, or January 31, 2023, but letters of credit totaled $9.4 million at July 31, 2023[53] - The Company was in compliance with all financial covenants of the amended Credit Agreement as of July 31, 2023, and January 31, 2023[54] NOTE 7 – COMMITMENTS This note outlines the Company's various commitments, including operating leases for office space and equipment, performance bonds and guarantees for projects, and assurance-type warranties on construction contracts - Operating lease right-of-use assets were $4.5 million at July 31, 2023, and $4.8 million at January 31, 2023. Operating lease expense for the six months ended July 31, 2023, was $0.9 million[56][57] Future Minimum Lease Payments for Operating Leases (as of July 31, 2023, in thousands): | Years Ending January 31, | Amount | | :----------------------- | :----- | | 2024 (remainder) | $879 | | 2025 | $1,470 | | 2026 | $1,194 | | 2027 | $276 | | 2028 | $221 | | Thereafter | $817 | | Total lease payments | $4,857 | - Rent expense for short-term rentals increased to $6.8 million for the six months ended July 31, 2023, from $5.3 million in the prior year period[59] - Estimated unsatisfied bonded performance obligations were approximately $0.5 billion at July 31, 2023, down from $0.6 billion at January 31, 2023[61] - The Company provides assurance-type warranties for construction contracts, typically 9 to 24 months, with costs estimated and accrued as work is performed[63] NOTE 8 – LEGAL CONTINGENCIES This note states management's assessment that no current legal claims or proceedings are expected to have a material adverse effect on the Company's condensed consolidated financial statements - Management believes that current claims and legal proceedings are not expected to have a material adverse effect on the condensed consolidated financial statements as of July 31, 2023[64] NOTE 9 – STOCK-BASED COMPENSATION This note details the Company's stock-based compensation plans, including stock options and restricted stock units, and provides a summary of activity and related compensation expenses for the periods presented - The 2020 Stock Plan, approved in June 2020, had an additional 500,000 shares allocated in June 2023, with 586,225 shares available for future awards as of July 31, 2023[65][67] Stock Option Activity (Six Months Ended July 31, 2023, shares in thousands): | Item | Shares | Weighted Average Exercise Price Per Share | | :-------------------------- | :----- | :-------------------------------- | | Outstanding, February 1, 2023 | 1,440 | $43.84 | | Granted | 10 | $39.47 | | Exercised | (45) | $21.04 | | Forfeited | (1) | $33.81 | | Outstanding, July 31, 2023 | 1,404 | $44.55 | | Exercisable, July 31, 2023 | 1,276 | $45.01 | - Restricted stock units (RSUs) awarded during the six months ended July 31, 2023, included performance-based (PRSUs, EPRSUs, RPRSUs) and time-based (TRSUs) units, totaling 73,854 target shares[71] - Stock compensation expense was $2.2 million for the six months ended July 31, 2023, with $7.2 million in unrecognized compensation cost expected to be expensed over the next three years[73] NOTE 10 – INCOME TAXES This note provides a reconciliation of income tax expense, discusses the status of Net Operating Loss (NOL) carryback refunds, Research and Development (R&D) tax credits, and investments in solar energy projects Income Tax Expense Reconciliation (Six Months Ended July 31, in thousands): | Item | 2023 | 2022 | | :------------------------------------------ | :------- | :------- | | Computed expected income tax expense (21%) | $4,276 | $4,970 | | State income taxes, net of federal tax effect | $455 | $349 | | Unrecognized tax loss benefit | $529 | — | | GILTI | $505 | $225 | | Excess executive compensation | $400 | $445 | | Foreign tax rate differential | $(643) | $(120) | | Tax credits | $(453) | $(124) | | Research and development credits adjustment | — | $6,181 | | Other permanent differences and adjustments, net | $418 | $33 | | Income tax expense | $5,487 | $11,959 | - The Company filed for approximately $12.7 million in NOL carryback refunds for Fiscal 2015 and 2016 under the CARES Act, with IRS review and approval still pending[79] - Amended federal income tax returns for Fiscal 2021 and 2022 were filed to include $5.8 million in R&D tax credits, offset by a $2.4 million provision for uncertain tax positions[80] - Income tax refunds receivable and prepaid income taxes totaled $16.9 million at July 31, 2023, and $15.3 million at January 31, 2023[81] - Investments in solar energy projects, accounted for using the equity method, had balances of $1.1 million at July 31, 2023, and $1.2 million at January 31, 2023[83] NOTE 11 – NET INCOME PER SHARE This note presents the calculation of basic and diluted net income per share for the three and six months ended July 31, 2023, and 2022 Net Income Per Share (Three Months Ended July 31): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Basic EPS | $0.95 | $0.30 | | Diluted EPS | $0.94 | $0.30 | Net Income Per Share (Six Months Ended July 31): | Metric | 2023 | 2022 | | :-------------------------- | :----- | :----- | | Basic EPS | $1.11 | $0.81 | | Diluted EPS | $1.10 | $0.80 | NOTE 12 – CASH DIVIDENDS AND TREASURY STOCK This note reports on the cash dividends declared and the common stock repurchases executed by the Company during the periods, including the impact of the new excise tax on repurchases - Argan's board of directors declared regular quarterly cash dividends of $0.25 per share in April and June 2023, both paid in the second quarter[89] Common Stock Repurchases (Six Months Ended July 31): | Year | Shares Repurchased | Aggregate Price (in millions) | Average Price Per Share | | :--- | :----------------- | :---------------------------- | :---------------------- | | 2023 | 169,788 | $6.7 | $39.45 | | 2022 | 1,412,592 | $53.2 | $37.64 | - The 1% excise tax on share repurchases, effective after December 31, 2022, was not material for the six months ended July 31, 2023[91] NOTE 13 – CUSTOMER CONCENTRATIONS This note highlights the Company's reliance on a few significant customers and the concentration of revenues, accounts receivable, and contract assets within its power industry services segment - The power industry services segment generated 75% and 72% of consolidated revenues for the three and six months ended July 31, 2023, respectively[92] - For the three months ended July 31, 2023, three power industry service customers accounted for 21%, 20%, and 12% of consolidated revenues[93] - At July 31, 2023, three major customers represented 35%, 15%, and 10% of consolidated accounts receivable, and 30%, 15%, and 13% of consolidated contract assets[94] NOTE 14 – SEGMENT REPORTING This note provides disaggregated financial data for the Company's three reportable segments: Power Industry Services, Industrial Construction Services, and Telecommunications Infrastructure Services, detailing their revenues, gross profit, and operational results Segment Revenues and Gross Profit (Three Months Ended July 31, 2023, in thousands): | Segment | Revenues | Gross Profit | Gross Profit % | | :-------------------------------- | :------- | :----------- | :------------- | | Power Industry Services | $105,345 | $18,251 | 17.3% | | Industrial Construction Services | $32,756 | $4,680 | 14.3% | | Telecommunications Infrastructure Services | $3,248 | $811 | 25.0% | | Consolidated Totals | $141,349 | $23,742 | 16.8% | Segment Revenues and Gross Profit (Six Months Ended July 31, 2023, in thousands): | Segment | Revenues | Gross Profit | Gross Profit % | | :-------------------------------- | :------- | :----------- | :------------- | | Power Industry Services | $175,521 | $28,092 | 16.0% | | Industrial Construction Services | $63,063 | $8,425 | 13.4% | | Telecommunications Infrastructure Services | $6,440 | $1,449 | 22.5% | | Consolidated Totals | $245,024 | $37,966 | 15.5% | NOTE 15 – SUPPLEMENTAL FINANCIAL STATEMENT INFORMATION This note provides additional details on the composition of other current assets and accrued expenses, and discloses a wire-transfer fraud incident and its financial impact Other Current Assets (in thousands): | Item | July 31, 2023 | January 31, 2023 | | :------------------------------------------ | :-------------- | :--------------- | | Income tax refunds receivable and prepaid income taxes | $16,895 | $15,327 | | Raw materials inventory | $12,836 | $11,903 | | Prepaid expenses | $6,848 | $4,541 | | Other | $6,859 | $6,563 | | Total other current assets | $43,438 | $38,334 | Accrued Expenses (in thousands): | Item | July 31, 2023 | January 31, 2023 | | :-------------------- | :-------------- | :--------------- | | Accrued compensation | $13,085 | $18,286 | | Accrued project costs | $43,995 | $17,448 | | Lease liabilities | $1,535 | $1,567 | | Other | $9,005 | $12,566 | | Total accrued expenses | $67,620 | $49,867 | - The Company incurred a $3.0 million wire-transfer fraud loss in March 2023, with $0.4 million recovered by July 31, 2023. The net loss of approximately $2.8 million (including professional fees) is reflected in other income, net[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance and condition, offering a detailed analysis of operating results, market outlook, liquidity, and critical accounting policies for the periods presented - The discussion summarizes the financial position as of July 31, 2023, and operating results for the three and six months ended July 31, 2023 and 2022, to be read with the unaudited financial statements and the annual 10-K[101][102] Cautionary Statement Regarding Forward Looking Statements This statement advises readers that forward-looking statements in the report involve inherent risks and uncertainties, and actual results may differ materially from projections. The Company disclaims any obligation to publicly update or revise these statements - Forward-looking statements are based on current expectations and beliefs but involve significant risks and uncertainties that could cause actual results to vary materially[104][105] - The Company undertakes no obligation to publicly update or revise any forward-looking statements[105] Business Description This section reiterates the Company's core business as a construction firm operating through its subsidiaries, providing services in power generation, industrial construction, and telecommunications infrastructure, with a focus on opportunistic acquisitions for profitable growth - Argan is primarily a construction firm operating through GPS, APC (power industry services), TRC (industrial construction services), and SMC (telecommunications infrastructure services)[106] - The Company seeks opportunistic acquisitions and investments in companies with potential for profitable growth and synergies, with a flexible industrial focus[107] Overview This overview summarizes the Company's consolidated operating results for the three and six months ended July 31, 2023 and 2022, highlighting revenue growth, gross profit trends, and net income performance, along with an update on project backlog and key project milestones Consolidated Operating Results (in millions): | Metric | 3 Months Ended July 31, 2023 | 3 Months Ended July 31, 2022 | 6 Months Ended July 31, 2023 | 6 Months Ended July 31, 2022 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenues | $141.3 | $118.1 | $245.0 | $218.4 | | Gross Profit | $23.7 (16.8%) | $24.4 (20.6%) | $38.0 (15.5%) | $44.1 (20.2%) | | Net Income | $12.8 | $4.2 | $14.9 | $11.7 | | Diluted EPS | $0.94 | $0.30 | $1.10 | $0.80 | - Consolidated revenues increased by 19.7% for the three months and 12.2% for the six months ended July 31, 2023, driven by growth in power industry and industrial construction services[108][112] - Project backlog remained stable at $0.8 billion as of July 31, 2023, primarily from the power industry services segment[118] - Key projects nearing completion include the Guernsey Power Station and Maple Hill Solar facility, while new projects like Trumbull Energy Center and Illinois solar and battery projects are underway or commencing[122][123][124][125] - APC's project backlog strengthened to approximately $142 million, including the Kilroot project in Northern Ireland and three FlexGen power plants in Ireland, with the Shannonbridge Project also receiving full notice to proceed[127][128][130] - TRC's project backlog increased by 135% over the last twelve months to approximately $140 million, driven by larger industrial field service construction projects[131] Market Outlook This section analyzes the evolving energy market, focusing on the transition from coal to natural gas and renewables, the impact of government policies like the IRA and EPA regulations, and challenges such as grid reliability and supply chain disruptions. It also highlights international opportunities in Ireland and the U.K. and the Company's strategic positioning - The U.S. electricity generation mix has shifted significantly, with coal declining from 45% in 2010 to 20% in 2022, while natural gas increased from 24% to 39% in the same period[133] - The Inflation Reduction Act (IRA) provides tax subsidies for renewables but includes 'buy American' and prevailing wage requirements that may strain supply chains and labor pools[135][140] - New EPA rules proposed in May 2023 aim to drastically reduce greenhouse gases from coal- and gas-fired power plants, potentially costing billions for compliance by 2042[141] - PJM Interconnection and other grid operators warn of increasing reliability risks due to the rapid retirement of traditional power plants outpacing the construction of new renewable energy and battery storage facilities[148][149][150] - Despite challenges, the Company believes demand for modern natural gas-fired power plants will persist due to lower operating costs, higher efficiencies, and grid resiliency needs, often with hydrogen-burning capabilities[158][159][161] - Overseas markets in Ireland and the U.K. offer significant new power construction opportunities, with governments recognizing the need for conventional generation (natural gas) to support intermittent renewables[164][165][166][167] Comparison of the Results of Operations for the Three Months Ended July 31, 2023 and 2022 This section provides a detailed comparison of the Company's operating results for the three months ended July 31, 2023, versus 2022, analyzing revenues, cost of revenues, gross profit, selling, general and administrative expenses, other income, and income taxes by segment Revenues by Segment (Three Months Ended July 31, in thousands): | Segment | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Power Industry Services | $105,345 | $91,327 | $14,018 | 15.3% | | Industrial Construction Services | $32,756 | $23,022 | $9,734 | 42.3% | | Telecommunications Infrastructure Services | $3,248 | $3,761 | $(513) | -13.6% | | Total Revenues | $141,349 | $118,110 | $23,239 | 19.7% | - Consolidated gross profit percentage decreased to 16.8% in 2023 from 20.6% in 2022, primarily due to changes in revenue mix and unfavorable profit adjustments on an APC project[183] - Other income, net, significantly increased to $4.1 million in 2023 from $0.5 million in 2022, mainly due to higher income from invested funds[186] - Income tax expense was $4.6 million (26.5% effective rate) in 2023, compared to $9.7 million in 2022, which included a $6.2 million unfavorable adjustment related to R&D credit claims[187] Comparison of the Results of Operations for the Six Months Ended July 31, 2023 and 2022 This section provides a detailed comparison of the Company's operating results for the six months ended July 31, 2023, versus 2022, analyzing revenues, cost of revenues, gross profit, selling, general and administrative expenses, other income, and income taxes by segment Revenues by Segment (Six Months Ended July 31, in thousands): | Segment | 2023 | 2022 | Change ($) | Change (%) | | :-------------------------------- | :------- | :------- | :--------- | :--------- | | Power Industry Services | $175,521 | $165,276 | $10,245 | 6.2% | | Industrial Construction Services | $63,063 | $45,523 | $17,540 | 38.5% | | Telecommunications Infrastructure Services | $6,440 | $7,588 | $(1,148) | -15.1% | | Total Revenues | $245,024 | $218,387 | $26,637 | 12.2% | - Consolidated gross profit percentage decreased to 15.5% in 2023 from 20.2% in 2022, primarily due to changes in revenue mix and unfavorable profit adjustments on an APC project[197] - Other income, net, increased to $3.5 million in 2023 from $1.1 million in 2022, reflecting higher investment returns ($5.7 million) partially offset by a $3.0 million wire-transfer fraud loss and related fees (net $2.8 million loss)[200] - Income tax expense was $5.5 million (26.9% effective rate) in 2023, compared to $12.0 million in 2022, which included a $6.2 million unfavorable adjustment related to R&D credit claims[202] Liquidity and Capital Resources as of July 31, 2023 This section analyzes the Company's liquidity and capital resources, detailing changes in cash and cash equivalents, cash flows from operating, investing, and financing activities, working capital, and the status of its credit facilities and commitments - Cash and cash equivalents increased by $30.9 million to $204.8 million at July 31, 2023, from $173.9 million at January 31, 2023[203] - Net cash provided by operating activities was $34.6 million for the six months ended July 31, 2023, a significant improvement from $56.8 million used in the prior year period[204][209] - Net cash provided by investing activities was $8.5 million, primarily from net maturities of CDs ($69.8 million) partially offset by purchases of AFS U.S. Treasury notes ($60.3 million)[206] - Net cash used in financing activities was $12.5 million, including $6.7 million for stock repurchases and $6.7 million for dividends, partially offset by $0.9 million from stock option exercises[207] - Net liquidity (working capital) increased by $3.3 million to $239.5 million at July 31, 2023, from $236.2 million at January 31, 2023[212] - The Company has a $50.0 million revolving loan facility with no outstanding borrowings, but $9.4 million in letters of credit were issued. The Company was compliant with all financial covenants[213][214][215] Earnings before Interest, Taxes, Depreciation and Amortization ("EBITDA") This section presents the calculation of EBITDA, a non-GAAP financial measure, for the three and six months ended July 31, 2023, and 2022, explaining its utility for assessing operating performance while cautioning against its use in isolation EBITDA (in thousands): | Period | 2023 | 2022 | | :-------------------------- | :------- | :------- | | Three Months Ended July 31 | $17,945 | $14,888 | | Six Months Ended July 31 | $21,594 | $25,621 | - EBITDA is presented as a meaningful non-GAAP measure to assess and compare operating performance by excluding the impacts of capital structure, depreciation, amortization, and income tax jurisdictions[226] - EBITDA should not be considered in isolation or as a substitute for GAAP results, nor does it necessarily represent funds available for discretionary use or ability to fund cash needs[227] Critical Accounting Policies This section identifies the Company's critical accounting policies, which involve subjective judgments and estimates that can significantly impact financial results, and confirms no material changes in their application during the period - Critical accounting policies include revenue recognition on long-term construction contracts, income tax reporting, and financial reporting for significant claims or legal matters[230] - No material changes occurred in the application of these critical accounting policies during the six months ended July 31, 2023[230] Recently Issued Accounting Pronouncements This section notes the issuance of ASU 2023-02 related to investment tax credits and confirms that no other recently issued accounting pronouncements are considered material to the consolidated financial statements - Other than ASU 2023-02, related to accounting for investment tax credits, no other recently issued accounting pronouncements are believed to be material to the consolidated financial statements[232] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the Company's exposure to market risks, primarily from fluctuations in interest rates on its investable cash and commodity prices affecting fixed-price contracts, and also mentions foreign currency translation risk - The Company is subject to interest rate risk on its substantial temporarily investable cash, which includes certificates of deposit, a money market fund, and U.S. Treasury notes[234] Hypothetical Annual Impact of Interest Rate Changes on Income (Pre-Tax, in thousands, based on July 31, 2023 balances): | Basis Point Change | Net Increase (Decrease) in Income (Pre-Tax) | | :----------------- | :------------------------------------------ | | Up 300 | $9,546 | | Up 200 | $6,364 | | Up 100 | $3,182 | | Down 100 | $(3,182) | | Down 200 | $(6,364) | | Down 300 | $(9,546) | - The Company is exposed to foreign currency translation effects from its APC subsidiary (Euros to U.S. dollars)[235] - Commodity price risks, particularly for steel, copper, concrete, and fuel, impact fixed-price contracts. The Company mitigates this by securing firm quotes and early procurement for major projects[237] - Global supply chain disruptions continue to challenge operations and may adversely affect future revenues by impacting project owners' confidence in commencing new work[238] Item 4. Controls and Procedures This section reports on management's evaluation of the effectiveness of the Company's disclosure controls and procedures, concluding they were effective, and confirms no significant changes in internal controls over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of July 31, 2023, providing reasonable assurance that required information is recorded, processed, summarized, and reported timely[239] - There have been no significant changes in internal control over financial reporting during the fiscal quarter ended July 31, 2023, that materially affected or are reasonably likely to materially affect internal control over financial reporting[240] Part II. Other Information Item 1. Legal Proceedings This section states management's opinion that no current legal claims or proceedings are expected to have a material effect on the Company's condensed consolidated financial statements - Management believes that any current claims or legal proceedings will not have a material effect on the condensed consolidated financial statements as of July 31, 2023[241] Item 1A. Risk Factors This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the Company's Annual Report have occurred[242] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the Company's ongoing Share Repurchase Plan, including the number of shares repurchased and the average price paid during the three months ended July 31, 2023, and the remaining authorized amount - The board of directors authorized a Share Repurchase Plan for up to $125 million of common stock[243] Share Repurchase Activity (Three Months Ended July 31, 2023): | Period | Shares Repurchased | Average Price per Share | Remaining Value (in thousands) | | :---------------- | :----------------- | :---------------------- | :----------------------------- | | May 1 - 31, 2023 | 3,932 | $39.96 | $32,574 | | June 1 - 30, 2023 | 21,701 | $39.98 | $31,706 | | July 1 - 31, 2023 | 51,499 | $38.88 | $29,704 | | Total | 77,132 | | | - Since November 2021, the Company has repurchased 2,553,254 shares at an average price of $37.32 per share under the plan[245] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[246] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[246] Item 5. Other Information This section states that there is no other information to report - No other information is reported[246] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL interactive data files - The exhibits include certifications from the CEO and CFO (Exhibit 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy files (Exhibit 101.INS, SCH, CAL, LAB, PRE, DEF, 104)[246] SIGNATURES Signatures This section contains the official signatures of the Company's President and Chief Executive Officer, and the Senior Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary, certifying the filing of the report - The report is duly signed on behalf of Argan, Inc. by David H. Watson, President and Chief Executive Officer, and Richard H. Deily, Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary, on September 6, 2023[251]