Argan(US:AGX)2024-04-11 20:16Part I This section provides an overview of the company's business operations, risk factors, property details, and legal proceedings Business Argan, Inc. is a holding company operating through four primary subsidiaries: Gemma Power Systems (GPS), Atlantic Projects Company (APC), The Roberts Company (TRC), and Southern Maryland Cable (SMC), structured into three reportable segments - Argan operates as a holding company with four main subsidiaries: GPS, APC, TRC, and SMC, organized into three reportable business segments12 Segment Revenue Contribution (as % of Consolidated Revenues) | Segment | Fiscal 2024 | Fiscal 2023 | Fiscal 2022 | | :--- | :--- | :--- | :--- | | Power Industry Services | 73% | 76% | 78% | | Industrial Construction Services | 25% | 20% | 19% | | Telecommunications Infrastructure Services | 2% | 4% | 3% | Power Industry Services (GPS and APC) This segment, comprising GPS in the U.S. and APC in Ireland and the U.K., is Argan's primary revenue driver, contributing 73% of consolidated revenues in Fiscal 2024 Power Industry Services Financials | Metric | Fiscal 2024 (Millions) | Fiscal 2023 (Millions) | Fiscal 2022 (Millions) | | :--- | :--- | :--- | :--- | | Revenues | $416.3 | $346.0 | $398.1 | | % of Consolidated Revenues | 73% | 76% | 78% | - Project backlog for the power industry services segment was approximately $0.6 billion at January 31, 2024, a decrease from $0.7 billion at January 31, 202318 - For Fiscal 2024, three power industry services customers accounted for 19%, 16%, and 15% of consolidated revenues, respectively35 - The company is targeting growth in renewable energy projects, including utility-scale solar, wind, battery storage, and hydrogen plants, to complement its natural gas-fired power plant business22 Industrial Construction Services (TRC) The Industrial Construction Services segment, operated by The Roberts Company (TRC), provides industrial construction and field services, primarily in the Southeast U.S Industrial Construction Services Financials | Metric | Fiscal 2024 (Millions) | Fiscal 2023 (Millions) | Fiscal 2022 (Millions) | | :--- | :--- | :--- | :--- | | Revenues | $142.8 | $92.8 | $97.9 | | % of Consolidated Revenues | 25% | 20% | 19% | - TRC's project backlog grew over 175% from January 31, 2022, to $127.5 million as of January 31, 2024, reflecting a strategic shift towards larger field service projects45 Telecommunications Infrastructure Services (SMC) This segment, operating as SMC Infrastructure Solutions, provides utility construction and technology wiring solutions, primarily in the Mid-Atlantic U.S Telecommunications Infrastructure Services Revenues | Fiscal Year | Revenues (Millions) | | :--- | :--- | | 2024 | $14.3 | | 2023 | $16.2 | | 2022 | $13.4 | - In Fiscal 2022, SMC acquired Lee Telecommunications, Inc. (LTI) for $0.6 million in cash, expanding its services into the Tidewater area of Virginia52 Corporate and Other Information As of January 31, 2024, Argan employed 1,214 people and maintained a $50.0 million credit facility, with a strong commitment to safety and sustainability - The company had 1,214 employees as of January 31, 202454 - Argan has a $50.0 million credit agreement with Bank of America, secured by a majority of its assets, which it expects to renew before its May 31, 2024 expiration. As of January 31, 2024, there were no borrowings, but $9.3 million in letters of credit were outstanding5556 - The company's OSHA reportable incident rate for calendar year 2023 was 0.43, significantly better than the national industry average58 - Unsatisfied bonded performance obligations for all subsidiaries totaled approximately $0.5 billion as of January 31, 202462 Risk Factors The company identifies several categories of risks that could materially affect its business, including project dependency, market competition, regulatory changes, and operational challenges - A majority of consolidated revenues are derived from a small number of large, long-term EPC services contracts, making financial results potentially uneven and dependent on winning new projects7882 - The company primarily uses fixed-price contracts, which expose it to risks of cost overruns due to inaccurate estimates, inflation, supply chain delays, or labor productivity issues, potentially leading to reduced profits or losses118119 - Regulatory hurdles, including the Biden Administration's goal for a carbon-free electricity sector by 2035 and proposed EPA rules, pose significant risks to the future development of fossil-fuel energy facilities110111112 - The company is exposed to cybersecurity risks, including a complex criminal scheme in March 2023 that resulted in fraudulently-induced wire transfers and a net loss of $2.7 million139 - Project backlog of $0.8 billion as of January 31, 2024, is not a guaranteed indicator of future revenue, as projects can be delayed, modified, or cancelled by customers8788 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None154 Cybersecurity Argan manages cybersecurity risk through a decentralized program with corporate oversight, technical measures, employee training, and incident response plans - Cybersecurity risk is managed at the subsidiary level with corporate oversight, integrating into the broader enterprise risk management framework. The audit committee of the board of directors oversees this area155156 - The company's strategy includes technical defenses, regular employee training on threats like phishing, security screening for third-party vendors, and maintaining cybersecurity insurance157159160 - In March 2023, the company was the target of a criminal scheme that resulted in fraudulently-induced wire transfers, leading to a recognized loss of $2.7 million after recovery efforts and professional fees167 Properties The company and its subsidiaries own and lease various properties for their operations, which are considered sufficient for current and foreseeable needs - GPS owns its 23,380 sq. ft. headquarters in Glastonbury, Connecticut168 - TRC owns its 90,000 sq. ft. industrial fabrication and warehouse facility in Winterville, North Carolina169 - APC owns office and warehouse space in Ireland and leases additional space in Ireland and England170 - SMC leases its primary office and maintenance facilities in Maryland and Virginia171 Legal Proceedings The company states that no current legal proceedings are expected to have a material adverse effect on its consolidated financial statements - The company is not currently involved in any legal proceedings that are expected to have a material effect on its financial statements173 Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable174 Part II This section details the company's common equity market, stock repurchase programs, management's financial discussion, market risks, and financial statements Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Argan's common stock trades on the NYSE under the symbol AGX, with a history of paying dividends and an active share repurchase program - In September 2023, the board of directors increased the regular quarterly cash dividend by 20% from $0.25 to $0.30 per share177 - The company has a share repurchase program authorized up to $125 million. Repurchases may occur in the open market or through other transactions179 Share Repurchases for Q4 Fiscal 2024 | Period | Total Shares Repurchased | Average Price per Share Paid | | :--- | :--- | :--- | | Nov 2023 | 4,881 | $44.40 | | Dec 2023 | 7,721 | $43.60 | | Jan 2024 | 80,125 | $43.67 | | Total | 92,727 | | [Reserved] This item is reserved and contains no information - None Management's Discussion and Analysis of Financial Condition and Results of Operations For Fiscal 2024, consolidated revenues increased 26.0% to $573.3 million, despite a gross profit decline due to a significant project loss, while maintaining a strong financial position and project backlog Fiscal 2024 vs. Fiscal 2023 Key Financials | Metric | Fiscal 2024 (Millions) | Fiscal 2023 (Millions) | % Change | | :--- | :--- | :--- | :--- | | Consolidated Revenues | $573.3 | $455.0 | 26.0% | | Consolidated Gross Profit | $80.8 | $86.4 | (6.4)% | | Net Income Attributable to Stockholders | $32.4 | $33.1 | (2.2)% | | Diluted EPS | $2.39 | $2.33 | 2.6% | - The primary driver for the decrease in gross profit was a $13.6 million loss recognized on the Kilroot Power Station project in Northern Ireland192213 - Consolidated project backlog was $0.8 billion as of January 31, 2024, primarily composed of projects in the power industry services segment196 Results of Operations (Fiscal 2024 vs. 2023) Fiscal 2024 revenues increased by 26.0% to $573.3 million, driven by growth in power and industrial services, though consolidated gross margin decreased due to a project loss Segment Revenue Performance (Fiscal 2024 vs 2023) | Segment | FY24 Revenue (Millions) | FY23 Revenue (Millions) | % Change | | :--- | :--- | :--- | :--- | | Power Industry Services | $416.3 | $346.0 | +20.3% | | Industrial Construction Services | $142.8 | $92.8 | +53.9% | | Telecommunications Infrastructure | $14.3 | $16.2 | -12.2% | - Consolidated gross profit was adversely impacted by a $13.6 million loss recorded for the Kilroot Power Station project263 - Other income increased by 188.0% to $12.5 million, primarily due to a $14.1 million gain on invested funds, partially offset by a $3.0 million wire-transfer fraud loss267 - The effective income tax rate for Fiscal 2024 was 33.9%, higher than the statutory rate primarily because the net operating loss of the U.K. subsidiary, where the Kilroot loss was recorded, was not tax effected with a benefit268 Liquidity and Capital Resources As of January 31, 2024, the company had $197.0 million in cash and cash equivalents, strong operating cash flow, no debt, and increased net liquidity Cash and Cash Equivalents | Date | Balance (Millions) | | :--- | :--- | | Jan 31, 2024 | $197.0 | | Jan 31, 2023 | $173.9 | Cash Flow Summary - Fiscal 2024 | Activity | Cash Flow (Millions) | | :--- | :--- | | Operating Activities | $116.9 provided | | Investing Activities | ($67.6) used | | Financing Activities | ($26.1) used | - The company has no outstanding borrowings under its $50.0 million credit facility, but had $9.3 million in letters of credit issued as of January 31, 2024281 - Unsatisfied bonded performance obligations were approximately $0.5 billion as of January 31, 2024, down from $0.6 billion the prior year285 Critical Accounting Policies The company identifies revenue recognition on long-term construction contracts and income tax reporting as critical accounting policies requiring significant management judgment - Revenue on fixed-price contracts is recognized over time using the cost-to-cost method, which depends on management's ongoing estimates of total costs to complete each project. Inaccuracies can lead to material changes in recognized revenue and profit304307 - The company includes variable consideration (e.g., unapproved change orders, claims) in the transaction price when it is probable a significant revenue reversal will not occur. As of Jan 31, 2024, $8.4 million of such variations were included in transaction prices pending customer approval311313 - Accounting for uncertain tax positions is critical, as demonstrated by the settlement with the IRS over prior-year R&D credits, which resulted in a $6.2 million unfavorable adjustment to income tax expense in Fiscal 2023320 - The company must assess the realizability of deferred tax assets, such as the $13.8 million related to foreign NOLs. A valuation allowance of $17.8 million exists, which was increased by $2.1 million in Fiscal 2024 due to revised future earnings estimates for the U.K. subsidiary498323501 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks include interest rate fluctuations, foreign currency risk, and commodity price volatility, managed without extensive hedging - The company is exposed to interest rate risk on its substantial cash and investment balances. As of January 31, 2024, the company had no outstanding debt327 Hypothetical Annual Pre-Tax Income Impact of Interest Rate Changes | Basis Point Change | Net Increase (Decrease) in Income | | :--- | :--- | | Up 100 basis points | $3,522,000 | | Down 100 basis points | ($3,522,000) | - The company is subject to foreign currency translation risk from its subsidiary APC, whose functional currency is the Euro. Translation effects are recognized in accumulated other comprehensive loss330 - Commodity price risk on fixed-price contracts is mitigated by securing firm quotes and procuring materials early in a project's lifecycle, rather than through hedging instruments332 Financial Statements and Supplementary Data This section contains the company's consolidated financial statements for the fiscal years ended January 31, 2024, 2023, and 2022, along with accompanying notes and auditor reports Report of Independent Registered Public Accounting Firm Grant Thornton LLP issued an unqualified opinion on Argan, Inc.'s consolidated financial statements and internal control over financial reporting, identifying revenue recognition as a critical audit matter - The auditor, Grant Thornton LLP, issued an unqualified opinion on both the consolidated financial statements and the effectiveness of internal control over financial reporting370380 - A critical audit matter was identified concerning revenue recognition for fixed-price contracts, highlighting the challenging, subjective, and complex judgments required by management to estimate total costs and transaction prices374375376 Consolidated Financial Statements The consolidated financial statements detail the company's performance and financial position, showing revenues of $573.3 million and net income of $32.4 million for Fiscal 2024 Consolidated Statement of Earnings (in thousands) | Metric | FY 2024 (Thousands) | FY 2023 (Thousands) | FY 2022 (Thousands) | | :--- | :--- | :--- | :--- | | Revenues | $573,333 | $455,040 | $509,370 | | Gross Profit | $80,834 | $86,361 | $99,732 | | Income from Operations | $36,458 | $41,669 | $44,510 | | Net Income Attributable to Stockholders | $32,358 | $33,098 | $38,244 | Consolidated Balance Sheet (in thousands) | Metric | Jan 31, 2024 (Thousands) | Jan 31, 2023 (Thousands) | | :--- | :--- | | Total Current Assets | $547,179 | $438,702 | | Total Assets | $598,229 | $489,487 | | Total Current Liabilities | $302,260 | $202,503 | | Total Liabilities | $307,290 | $208,590 | | Total Stockholders' Equity | $290,939 | $280,897 | Consolidated Statement of Cash Flows (in thousands) | Metric | FY 2024 (Thousands) | FY 2023 (Thousands) | | :--- | :--- | | Net cash provided by (used in) operating activities | $116,858 | ($30,061) | | Net cash used in investing activities | ($67,607) | ($63,122) | | Net cash used in financing activities | ($26,050) | ($82,803) | | Net increase (decrease) in cash | $23,085 | ($176,525) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports that there have been no changes in or disagreements with its accountants on any matter of accounting principles or practices, or financial statement disclosure - None335 Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of January 31, 2024, a conclusion affirmed by the independent auditor - Based on their evaluation, the CEO and CFO concluded that the company's disclosure controls and procedures were effective as of January 31, 2024338 - Management concluded that the company's internal control over financial reporting was effective as of January 31, 2024. This assessment was audited by Grant Thornton LLP, which issued an unqualified opinion341342 Other Information During the fourth quarter ended January 31, 2024, no director or officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the fourth quarter of Fiscal 2024346 Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not applicable347 Part III Part III of this Annual Report, covering directors, executive officers, corporate governance, executive compensation, security ownership, and certain relationships and transactions, incorporates information by reference from the company's definitive Proxy Statement for the 2024 Annual Meeting of Stockholders, which is to be filed with the SEC within 120 days of the fiscal year-end Directors, Executive Officers and Corporate Governance Information required for this item is incorporated by reference from the company's 2024 Proxy Statement - Information required by this item will be incorporated by reference to the 2024 Proxy Statement349 Executive Compensation Information required for this item is incorporated by reference from the company's 2024 Proxy Statement - Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference350 Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters This item provides information on equity compensation plans and incorporates other security ownership details by reference from the 2024 Proxy Statement Equity Compensation Plan Information as of January 31, 2024 | Plan Category | Securities Issuable under Outstanding Options | Weighted Avg. Exercise Price | Securities Remaining for Future Awards | | :--- | :--- | :--- | :--- | | Approved by Stockholders | 1,364,668 | $44.95 | 543,087 | - Other information required by this item will be included in the 2024 Proxy Statement and is incorporated by reference351 Certain Relationships and Related Transactions, and Director Independence Information required for this item is incorporated by reference from the company's 2024 Proxy Statement - Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference353 Principal Accountant Fees and Services Information required for this item is incorporated by reference from the company's 2024 Proxy Statement - Information required by this item will be included in the 2024 Proxy Statement and is incorporated herein by reference354 Part IV Part IV contains the list of exhibits filed with the Form 10-K and the financial statement schedules, noting that a Form 10-K summary is not applicable Exhibits and Financial Statements This item lists the financial statements, financial statement schedules, and all exhibits filed as part of the Annual Report on Form 10-K - This section lists all financial statements and exhibits filed with the Form 10-K, including the consent of the independent auditor, CEO/CFO certifications, and various corporate agreements357358359 Form 10-K Summary The company has not provided a summary for its Form 10-K - None361