Q3 2024 Argan Inc Earnings Call
Speaker 1: Good evening, ladies and gentlemen, and welcome to the Argonne Inc. Earnings Release Conference call for the third quarter of fiscal 2024, which ended October 31 2023. This call is being recorded.
Good evening, ladies and gentlemen, and welcome to the Oregon, Inc. Earnings release conference call for the third quarter of fiscal 'twenty 'twenty four which ended October 31, 2023. This call is being recorded.
Speaker 1: All participants have been placed on a listen-only mode. Following management's remarks, the call will be open for questions. There is a slide presentation that accompanies today's remarks, which can be accessed via the web.
All participants have been placed on a listen only mode. Following management's remarks, the call will be opened for questions. There is a slide presentation that accompanies today's remarks, which can be accessed via the webcast.
Speaker 1: At this time, it is my pleasure to turn the floor over to your host for today, Jennifer Bilodeau of IMS Investor Relations. Please go ahead.
At this time it is my pleasure to turn the floor over to your host for today, Jennifer Bilodeau of IMS Investor Relations. Please go ahead.
Speaker 2: Thank you. Good evening and welcome to our conference call to discuss our against results for the third quarter of fiscal year 2024 ended October 31 2023. On the call today we have David Watson chief executive officer and Hank Daley chief financial officer. I will take a moment to read the
Thank you good evening and welcome to our conference call to discuss our against results for the third quarter of fiscal year 'twenty 'twenty four and at October 31, 2023 on the call today, we have David Watson, Chief Executive Officer, and hate Daly, Chief Financial Officer, I will take a moment to read the safe Harbor statement statements made during this conference call.
Speaker 2: Statements made during this conference call and presented in the presentation that are not based on historical facts are forward-looking statements. Such statements include, but are not limited to, projections or statements of future goals and targets regarding the company's revenues and profits.
Presented in the presentation that are not based on historical facts are forward looking statements. Such statements include but are not limited to projections or statements future goals and targets regarding the companys revenues and profits. These statements are subject to known and unknown factors and risks the company's actual results performance or achievements may differ materially from those expressed or implied.
Speaker 2: These statements are subject to known and unknown factors and risks. The company's actual results, performance, or achievements may differ materially from those expressed or implied by these forward-looking statements. And some of the factors and risks that could cause or contribute to such material differences have been described in this afternoon's press release and in Oregon's filings with the US Securities and Exchange Commission.
These forward looking statements and some of the factors and risks that could cause or contribute to such material differences have been described in this afternoons press release and in our filings with the U S Securities and Exchange Commission.
Speaker 2: These statements are based on information and understandings that are beliefally accurate as of today, and we do not undertake any duty to update such forward-looking statements.
These statements are based on information and understanding that are believed to be accurate as of today and we do not undertake any duty to update such forward looking statements earlier. This afternoon. The company issued a press release announcing its third quarter financial results and filed its third quarter Form 10-Q, with the Securities and Exchange Commission.
Speaker 2: Earlier this afternoon, the company issued a press release announcing its third quarter financial results and filed the third quarter form 10Q with the Securities and Exchange Commission.
Speaker 2: Okay, with that out of the way, I will now turn the call over to David Watson, CEO of RGAN. Go ahead, David.
Okay with that out of the way I will now turn the call over to David Watson CEO of our again go ahead David.
Speaker 3: Thanks, Jen, and thank you, everybody, for joining today. I'll start by reviewing some of the highlights of our operations and activities, and Hank Thiley, our CFO , will go through or will go over our financial results for the third quarter of fiscal 2024 ended October 31st, 2023. Then we'll open up the call for a brief Q&A.
Thanks, Jeff and thank you everybody for joining today I'll start by reviewing some of the highlights of our operations and activities and Henk daily our CFO will go through or will go over our financial results for the third quarter of fiscal 2024 and at October 31 2023.
Look up the call for a brief Q&A.
Speaker 3: During the third quarter, we saw revenues grow by 39% to 164 million, reflecting improvements from both our power industry services and our industrial construction services.
During the third quarter, we saw revenues grow by 39% to $164 million, reflecting improvements from both our power industry services and our industrial construction services businesses, we delivered solid profitability outside the kill route job, which I'll cover later in detail and we saw continued.
Speaker 3: We delivered solid profitability outside the killroot job, which I will cover later in detail. And we saw continued strength in our balance sheet. Our backlog at October 31st, 2023 was a healthy 730 million. And we closed the third quarter of fiscal 2024 with almost 400 million of cash and investments and net liquidity of 240 million. Additionally, we continue to carry no debt.
Strength in our balance sheet, our backlog at October 31, 2023.
$730 million and we closed the third quarter of fiscal 2024, with almost $400 million of cash and investments and that liquidity of $240 million.
Additionally, we continue to carry no debt.
Speaker 3: During the third quarter, we repurchased approximately 43,000 shares of our common stock pursuant to our stock repurchase program for a total spend of approximately 1.7 million or $40.54 per share.
During the third quarter, we repurchased approximately 43000 shares of our common stock pursuant to our stock repurchase program right.
For a total spend of approximately $1 7 million.
Or $40.54 per share.
Speaker 3: We were also pleased to increase our cash dividend payout 20%.
We're also pleased to increase our cash dividend payout, 20% too.
Speaker 3: to $0.30 per quarter, reflecting our confidence in our business.
Earnings per quarter, reflecting our confidence in our businesses.
Speaker 3: On slide four, you see our three reportable business segments.
On slide four you see our three reportable business segments.
Speaker 3: Power and industry services is comprised of our GEMMA Power Systems and Atlantic Projects Company operating units, which focus on the construction of multiple types of power facilities, including efficient gas-fired power plants, solar energy fields, biomass facilities, and wind farms.
Power and the Street services is comprised of our gem of power systems and Atlantic projects Company operating units, which focus on the construction of multiple types of power facilities, including efficient gas fired power plants solar energy fields biomass facilities and wind farms.
Speaker 3: Power industry services revenues increased 34% to $121.3 million as compared to $90.7 million for the third quarter of fiscal 2023. The segment represented 74% of our third quarter revenues and reported pre-tax book income of $11 million.
Power industry services revenues increased 34% to $121 3 million as compared to $90 7 million for the third quarter of fiscal 2023.
The segment represented 74% of our third quarter revenues and reported pre tax book income of $11 million.
Speaker 3: Industrial Construction Services, which is represented by the Roberts Company, had a strong quarter and contributed 23.5% of our third quarter consolidated revenues and a reported pre-tax book income of $2.9 million.
Industrial construction services, which is represented by the Robert's company had a strong quarter and contributed 23, 5% of our third quarter consolidated revenues and our reported pre tax book income of $2 9 million.
Speaker 3: Revenues and pre-tax book income both increased for this segment during the third quarter by 74% and 84% respectively, as compared to the amounts reported for the comparable quarter last year.
Revenues and pretax book income both increased for this segment during the third quarter by 74% and 84% respectively as compared to the amounts reported for the comparable quarter last year.
Speaker 3: PRC provides solutions to mostly industrial and manufacturing clients with a focus on agriculture, petrochemical, pulp and paper, water and power industries, as well as other newer industries, adding to or expanding the number of production facilities in the Southeast.
<unk> provides solutions to mostly industrial and manufacturing clients with a focus on agriculture, petrochemical pulp and paper water and power industries as well as other newer industries, adding to our expanding the number of production facilities in the southeast.
Speaker 3: This segment focuses on industrial construction projects, but provides other field services like plant maintenance turnarounds, shutdowns, and emergency mobilization.
The segment focuses on the industrial construction projects, but provides other field services like plant maintenance turnarounds shutdowns.
An emergency mobilization.
Speaker 3: as well as pipe and pressure vessel fabrication.
As well as pipe and pressure vessel fabrication.
Lastly, we have our telecommunications infrastructure services group, our smallest segment, which contributed two 5% of our third quarter revenues.
Speaker 3: Lastly, we have our telecommunications infrastructure services group. Our smallest segment, which contributed 2.5% of our 3rd quarter revenue.
Speaker 3: SMC Infrastructure Solutions is our operating brand in the segment.
<unk> infrastructure solutions is our operating brand in the segment.
Speaker 3: Providing outside construction services for the utility and telecommunications sectors, as well as inside the premises, wiring services, primarily for the federal government locations and military installations requiring high level security.
Providing outside construction services for the utility and telecommunications sectors.
Well as inside the premises wired services, primarily for the federal government locations and military installations, requiring high level of security clearance.
Speaker 3: While our ability to drive substantial growth in revenues for the third quarter shows the underlying strength of our core business model.
While our ability to drive substantial growth in revenues for the third quarter shows the underlying strength of our core businesses during the third quarter, our international subsidiary APC encountered significant and escalating operational and contractual challenges associated with the <unk> project in northern.
Speaker 3: During the third quarter, our international subsidiary, APC, encountered significant and escalating operational and contractional challenges associated with the Kilroot project in Northern Ireland. By way of quick background, Kilroot is a 660-megawatt gas-fired power plant being built just outside of Belfast. Kilroot is a Brownfield project and an existing structure that was first built in the 80s to house coal-fired power generation assets.
Ireland by way of quick background kill route is a 660 megawatt gas fired power plant being built just outside of Belfast.
As a brownfield project and the existing structure that was first built in the Eighty's to house coal fired power generation assets.
Speaker 3: Last quarter, we discussed the challenges that have impacted our ability to...
Last quarter, we discussed the challenges that have impacted our ability to execute as expected on the kilroy project, including weather related work interruptions Covid variance sidelining the workforce material changes to the project the war in Ukraine, and global supply chain delays among others.
In addition, unresolved variances and claims have disrupted our progress and unresolved project related matters continue to meaningfully impact the contract our cost and the project schedule negatively.
At October 31, 2023, Apc's estimates of the unfavorable financial impacts related to the difficulties on the Kilroy project escalated substantially.
Accordingly, an estimated loss at completion of approximately seven 9 million was recognized during the quarter ended October 31 2023.
Speaker 3: The loss recorded for the three-month period ended October 31, 2023, and the amount of approximately $10.7 million includes an unfavorable adjustment of estimated gross profit of approximately $2.8 million that was recorded in previous periods.
The loss recorded for the three month period ended October 31, 2023, and the amount of approximately $10 7 million includes an unfavorable adjustment of estimated gross profit of approximately $2 8 million that was recorded in previous periods.
Speaker 3: As an organization, we are intently focused on efficient execution and project success.
As an organization, we are intently focused on efficient execution and project success.
Speaker 3: and the impact of the unanticipated challenges that have resulted in the Killroot loss is extremely disappointing to us as we know it is to our fellow shareholders.
And the impact of the unanticipated challenges that have resulted in the loss is extremely disappointing to us as we know it is to our fellow shareholders.
Speaker 3: APC is continuing all efforts to resolve open variations, claims, and appropriate extension of time to mitigate these losses and to improve the final financial results for this project.
A P C as continuing all efforts to resolve open variations claims.
The appropriate extension of time to mitigate these losses and to improve the final financial results for this project.
Speaker 3: We estimate that we are over 95% complete with design and construction and currently commissioning the facility and expect to be ready for the first fire of both gas turbines by early 2024.
We estimate that we are over 95% complete with design and construction and currently commissioning the facility and expect to be ready for the first fire of both gas turbines by early 2024.
Excluding killer at.
Speaker 3: Excluding Killroot, execution has generally been strong across all the businesses during the third quarter, and we remain committed to driving execution excellence and strong margin performance.
Execution has generally been strong across all the businesses during the third quarter and we remain committed to driving execution excellence and strong margin performance.
Speaker 3: Importantly, we continue to see tremendous opportunity for Argan moving forward as the energy landscape continues its transitions from fossil fuel to cleaner alternatives like natural gas and renewables.
Importantly, we continue to see tremendous opportunity for Oregon moving forward.
As the energy landscape continues its transition from fossil fuel to cleaner alternative this like natural gas and renewables.
Speaker 3: Coal-fired power generation in the U.S. is expected to drop by an additional 70% to represent only 5% of net electrical generation by 2050.
Fired power generation in the U S is expected to drop by an additional 70% to represent only 5% of net electrical generation by 2050 wild.
Speaker 3: while the demand for stable grids and reliable power generation will only continue to grow.
While the demand for stable grids and reliable power generation will only continue to grow.
Speaker 3: Argan has earned a solid reputation as a proven design and construction partner for the power industry.
Argon has earned a solid reputation as a proven design and construction partner for the power industry.
Speaker 3: And we are energized by the pipeline of opportunities we're seeing to work with both new and repeat customers as they build facilities designed to provide cleaner energy sources to meet growing power consumption practices.
And we are energized by the pipeline of opportunities, we're seeing to work with both new and repeat customers as they build facilities designed to provide cleaner energy sources to meet growing power consumption practices.
Speaker 3: Last quarter, we announced our limited notices to proceed on a project with Vistra Energy.
Last quarter, we announced our limited notices to proceed on a project with district energy.
Speaker 3: Project is well underway with GEMMA working with Vistra to complete three facilities located in Illinois to provide 160 megawatts of solar power plus 22 megawatts of battery storage capability.
Project is well underway with Jim or working with Vista to complete three facilities located in Illinois to provide 160 megawatts of solar power plus 22 megawatts of battery storage capability.
Speaker 3: This is an exciting and substantial opportunity for us to continue to demonstrate our capabilities in the renewable energy space supporting the adoption of solar power as a reliable energy source.
This is an exciting a substantial opportunity for us to continue to demonstrate our capabilities in the renewable energy space supporting the adoption of solar power as a reliable energy source.
Speaker 3: On slide eight, we highlight the Shannon Bridge Power Project in Ireland, an APC project pursuant in which it is providing EPC services for a 264-megawatt thermal power plant.
On slide eight we highlight the Shannon Bridge power project in Ireland, and APC project pursuit in which it is providing EPC services for a 264 megawatt thermal power plant.
Speaker 3: This is another large project of ours that has been performing well. APC and GEMMA have combined their skills and experience to complete the Shannon Bridge project from start to finish.
This is another large project of ours that has been performing well.
P C and Jim have combined their skills and experience to complete the Shannon rich project from start to finish.
Speaker 3: timeline which includes design, procurement, construction, and commissioning.
A timeline, which includes design procurement construction and commissioning.
Speaker 3: This project demonstrates our ability to execute a major project on an extremely short timeline.
This project demonstrates our ability to execute a major project on an extremely short timeline.
Speaker 3: We began work on this project in the first half of 2023, and it has a targeted completion date of early 2024.
Began work on this project in the first half of 2023 and as a targeted completion date of early 2024.
Speaker 3: Shannon Bridge is being built to bolster the region's power infrastructure and support the electrical grid during emergencies or high usage.
<unk> is being built to bolster the region's power infrastructure and support the electrical grid during emergencies or high usage periods.
Speaker 3: As the industry shifts to new power generation technologies, it's important to note that 82% of our current backlog of over 0.7 billion represents projects that support low carbon emissions, demonstrating our commitment and our leadership role in the transition to cleaner power generation.
As the industry shifts to new power generation technologies. It is important to note that 82% of our current backlog of over <unk> 7 billion represents projects that support low carbon emissions, demonstrating our commitment and our leadership role in the transition to cleaner power generation.
Speaker 4: So again, before I hand the call over to Hank Daly to go over our financial performance in detail, I want to reiterate that while the latest developments with the Killroot project are disappointing, we are generally seeing strong execution on all of our other major projects, and we remain optimistic that our results over the long term will be strong. Hank?
So again before I hand, the call over to Hank daily to go over our financial performance in detail.
Want to reiterate that while the latest developments with the Kilroy project are disappointing we.
We are generally seeing strong execution on all of our other major projects and we remain optimistic that our results over the long term will be strong.
Henk.
Yeah.
Thanks, David.
Good afternoon, everyone.
Speaker 5: slide 10, we present our consolidated statements of earnings for the third quarter and the first nine months of fiscal 2024.
With slide 10, we present, our consolidated statements of earnings for the third quarter and the first nine months of fiscal 2024.
Speaker 5: Third quarter revenues increased 39% to $164 million, reflecting an increase in revenues from both our power services and industrial services segment.
Third quarter revenues increased 39% to $164 million, reflecting an increase in revenues.
For both our power services and industrial services segments as <unk>.
Speaker 5: compared to the third quarter of fiscal 2023.
Compared to the third quarter of fiscal 2023.
Speaker 5: In the third quarter, we achieved a 34% increase in revenues in our power industry services sector.
In the third quarter, we achieved a 34% increase in revenues.
Power industry services segment, primarily related to projects under construction at overseas and the Trumbull Energy Center.
Speaker 5: primarily related to projects under construction overseas and the Trumbull Energy Center.
Partially offset by decreased revenues associated with the Guernsey power station and the Maple Hill solar facility.
Speaker 5: those projects reach the final completion stage. In our industrial construction services segment, the company achieved revenue growth of 74 percent.
As those projects reach a final completion stage.
In our industrial construction services segment, the company achieved revenue growth of 74%.
Speaker 5: driven by a substantial increase in field services and supporting steel fabrication work.
Driven by a substantial increase in field services.
And supporting steel fabrication work.
That said.
As David previously mentioned.
Speaker 5: APC has been contending with significant and escalating operational and contractual challenges associated with the Killroot power station project in Northern Ireland.
APC has been contending with significant and escalating operational and contractual challenges associated with the kill route power station project in Northern Ireland.
Speaker 5: For the three months ended October 31, 2023.
For the three months ended October 31 2023.
Speaker 5: Argan reported consolidated gross profit of approximately $19.2 million.
<unk> reported consolidated gross profit of approximately $19 $2 million.
Speaker 5: which represented a gross profit percentage of approximately 11.7%.
Which represented a gross profit percentage of approximately 11, 7%.
Speaker 5: and reflected positive contributions from all three reportable business segments.
And reflected positive contributions from all three reportable business segments.
Speaker 5: However, these results were adversely impacted by the recorded loss of $10.7 million related to the Killroot project.
However.
These results were adversely impacted by the recorded loss of $10 $7 million related to the kill route project.
Speaker 5: an amount representing approximately 6.5% of consolidated revenues for the quarter.
An amount representing approximately six 5% of consolidated revenues for the quarter.
Speaker 5: Consolidated gross profit for the quarter ended October 31, 2022, was $22.2 million, representing a gross profit percentage of 18.8%.
Consolidated gross profit for the quarter ended October 31, 2022 was $22 $2 million, representing a gross profit percentage of 18, 8%.
Selling general and administrative expenses.
Speaker 5: of $11.4 million for the third quarter of fiscal 2024 decreased as compared to SG&A.
11, 4 million for the third quarter of fiscal 2024 <unk>.
Decreased as compared to SG&A.
Speaker 5: $12.7 million in the third quarter of fiscal 2022.
Of $12 7 million in the third quarter of fiscal 2023.
Speaker 5: Net income for the third quarter of fiscal 2024 as adversely affected by the kill root loss was $5.5 million or 40 cents per diluted share.
Net income for the third quarter of fiscal 2024 has adversely affected by the cumulative loss.
Was $5 5 million or 40 cents per diluted.
<unk> sure.
Impaired to seven $8 million or <unk> 56 cents per diluted share for last year's comparable quarter.
Speaker 5: or $0.56 per diluted share for last year's comparable quarter.
EBITDA.
Which represents earnings before interest taxes, depreciation and amortization for.
Speaker 5: represents earnings before interest, taxes, depreciation, and amortization.
Speaker 5: for the quarter ended October 31, 2023, was $12.2 million, compared to $11.3 million in the same period of last year.
For the quarter ended October 31 2023 each.
It was $12 2 million compared.
Compared to $11 $3 million in the same period of last year.
Speaker 5: Looking at our year-to-date performance, revenues for the first nine months of fiscal 2024 increased by 22% to $409 million.
Looking at our year to date performance revenues for the first nine months of fiscal 2024 increased by 22% to $409 million.
Speaker 5: compared to revenues of $336 million for the comparable prior year period.
As compared to revenues of $336 million for the.
Comparable prior year period.
Speaker 5: Revenues in our power industry services segment increased by $40.9 million, or 16%.
Revenues in our power industry services segment increased.
Increased by $49 million or 16%.
Speaker 5: $296.8 million for the nine months ended October 31, 2023.
To $296 8 million for the nine months ended October 31 2023.
Speaker 5: compared with revenues of $256 million for the comparable period last year. Construction at.
Paired with revenues up $256 million for the comparable period last year.
Construction activities have increased in the current year for the Irish Shannon Bridge project.
Speaker 5: in the current year for the Irish Shannon Bridge Project.
Speaker 5: Trumbull Energy Center and the ESB FlexGen Peeker plant.
The Trumbull Energy Center.
In the ESP flex Gen <unk> plants.
Speaker 5: The increased revenues were partially offset by the effects of decreased activities at the Guernsey Power Station and the Maple Hill Solar Energy Facility as those EPC projects wind down.
The increased revenues were partially offset by the effects of decreased activities.
The Guernsey power station and the Maple Hill Solar energy facility as those EPC projects wind down.
Speaker 5: Our consolidated gross profit of 14% for the first nine months of fiscal 2024 decreased as compared to gross margin of 19.7% in the first nine months of fiscal 2023.
Our consolidated gross profit of 14% for the first nine months of fiscal 2024 decreased as compared to gross margin of 19, 7% in the first nine months of fiscal 2023.
Speaker 5: primarily due to $11.5 million of loss that was recorded in the first nine months of 2024 related to the Killroot project.
Primarily due to $11 $5 million of loss that was recorded in the first nine months of 2024.
Related to the kill route project.
Speaker 5: gross margins in our power industry services, our industrial services, and our telecommunications infrastructure services segment.
Gross margins in our power industry services, our industrial services and our telecommunications infrastructure services segments were 14% 12, 8% and 25, 1% respectively for the first nine months of fiscal 2024.
Speaker 5: 14%, 12.8%, and 25.1% respectively.
Speaker 5: for the first nine months of fiscal 2024, as compared to 20.7%, 15.8%,
As compared to 27% <unk>.
15, 8%.
Speaker 5: 21.1% respectively for the first nine months of fiscal 2023.
And 21, 1% respectively for the first nine months of fiscal 2023.
Speaker 5: SG&A expenses decreased to $32.5 million for the first nine months of fiscal 2024 as compared to $34.2 million for the first nine months of fiscal 2023.
SG&A expenses decreased to $32 $5 million.
For the first nine months of fiscal 2024, as compared to $34 2 million, who were for the first nine months of fiscal 2023.
Speaker 5: Net income for the first nine months of fiscal 2024.
Net income for the first nine months of fiscal 2024 was $23 million or $1 50 per diluted share compared to $19 5 million or $1 36 per diluted share.
Speaker 5: $20.3 million or $1.50 per diluted share compared to $19.5 million.
Speaker 5: $1.36 per diluted share for the first nine months of
For the first nine months of last fiscal year.
Speaker 5: EBITDA was $33.8 million, compared with EBITDA of $36.9 million in the first nine months of fiscal year.
EBITDA was $33 $8 million compared with EBITDA of $36 $9 million in the first nine months of fiscal 2023.
Speaker 5: Most notably, these consolidated results were tempered by the reduction in consolidated growth profit between periods related to the loss recorded on the Killroot contract as to
Most notably these.
These consolidated results were tempered by the reduction in consolidated gross profit between periods related to the loss recorded on the kill route contract as discussed earlier.
Speaker 5: Our income tax reporting for the periods ended October 31, 2023 is also negatively impacted by the kill root loss.
Our income tax reporting for the periods ended October 31, 2023 is also negatively impacted by the kill route loss.
Speaker 5: we did not apply any income tax benefit to the resulting net operating loss incurred by APC in the UK, excluding
We did not apply any incompact tax benefit to the resulting net operating loss.
<unk> by APC in the UK.
Excluding this adverse tax impact.
Speaker 5: Our underlying estimated annual effective income tax rate for fiscal 2024 is slightly over $20,000.
Our underlying estimated annual effective income tax rate for fiscal 2024.
This is slightly over 23%.
Speaker 5: Before turning the call back to David, I would like to touch on.
Before turning the call back to David I would like to touch on.
Speaker 5: favorable returns we are experiencing in the current year related to our cash, cash equivalents and investment.
The favorable returns we are experiencing in the current year related to our cash cash equivalents.
And investments.
Speaker 5: that are invested as described in our condensed consolidated financial.
That are invested as described in our condensed consolidated financial statements.
Speaker 5: Other income for the three and nine months ended October 31, 2023.
Other income for the three and nine months ended October 31 2023.
Speaker 5: included investment income and the approximate pre-tax amount.
Included in investment income in the approximate pretax amounts of $4 million and $9 7 million.
Speaker 5: $4 million and $9.7 million, respectively.
Respectively.
Speaker 5: based on our current amount of investments and the weighted average annual interest rate on those investments of 5.1 percent
Based on our current amount of investments and the weighted average annual interest rate on those investments of five 1%.
Speaker 5: current run rate equates to more than $15 million in annual investment income. With that, I'll turn the call over to you.
Our current run rate equates to more than $15 million.
In annual investment income.
With that I'll turn the call back to David.
Thanks Hank.
Speaker 3: Turning to slide 11, our consolidated project backlog remains solid at over 0.7 billion as of October 31st, 2022.
Turning to slide 11, our consolidated project backlog remains solid at over <unk> 7 billion as of October 31 2023.
Speaker 3: I think it's important to note that, as expected and mentioned on our last call, we did not add any major projects in the quarter. However, we were pleased to add 70 million in miscellaneous backlog during the quarter, which partially offset the 164 million of backlog that was converted to revenue.
I think it's important to note that as expected and mentioned on our last call. We did not add any major projects in the quarter. However, we were pleased to add $70 million in miscellaneous backlog during the quarter, which partially offset the $164 million of backlog that was converted to revenues. While this is a decline from the back.
Speaker 3: While this is a decline from the backlog level of $0.8 billion we maintained through the first half of fiscal 2024, we continue to see a strong pipeline of opportunities and our backlog continues to reflect longer-term, fully committed projects in both the power industry and industrial services sector.
<unk> level of 0.8 billion, we maintained through the first half of fiscal 2024, we continued to see a strong pipeline of opportunities and our backlog continues to reflect longer term fully committed projects in both the power industry and industrial services segments.
Speaker 3: On slide 12, we present certain major projects currently included in our backlog. We have two projects currently winding down, the Guernsey Power Station, which is the largest single phase gas-fired power plant project in the US, and the Maple Hill Solar Facility.
On slide 12, we present certain major projects currently included in our backlog we have two projects currently winding down the Guernsey power station, which is the largest single phase gas fired power plant project in the U S and the Maple Hill solar facility.
Speaker 3: Both are substantially complete and are expected to reach final completion in Q4.
Both are substantially complete and are expected to reach final completion in Q4.
Speaker 3: The three ESB FlexGen peaker power plants and the Shannon Bridge thermal plants are both in the final stages of construction, and several of the power units have either started commissioning or getting close to starting commissioning.
The three ESB flex Gen peak, our power plants in the Shannon British thermal plants are both in the final stages of construction.
Several of the power units have either started commissioning or getting close to starting commissioning.
Speaker 3: The Vistra Solar Plus battery projects in Illinois are relatively new to the list for which we expect to receive full notices to proceed in Q4. We also include two separate water treatment plant projects that are being performed by TRC.
The viscera solar plus battery projects in Illinois are relatively neutral list for which we expect to receive full notices to proceed in Q4. We also include two separate water treatment plant projects that are being performed by Trc or.
Speaker 3: Our backlog remains very healthy with a variety of projects that demonstrate the range of our capabilities and our recognition in the power industry as the effective industry partner, not only in the U.S., but also in Ireland and the U.S.
Our backlog remains very healthy with a variety of projects that demonstrate the range of our capabilities.
And our recognition in the power industry as the effective industry partner.
Not only in the U S, but also in Ireland and the UK.
Speaker 3: Our balance sheet remained strong as of October 31st, 2023, cash equivalents and investments totaled almost $400 million, generating meaningful investment yields, and net liquidity was $240 million with no debt.
Our balance sheet remains strong as of October 31, 2023, cash cash equivalents and investments totaled almost $400 million generating meaningful investment yields and net liquidity was $240 million with no debt.
Speaker 3: Stockholders equity was 285 million at October 31st, 2023.
Stockholders' equity was 285 million at October 31, 2023.
Speaker 3: As you can see from this liquidity bridge, our business model ordinarily requires a very low level of capital expenditure.
As you can see from this liquidity bridge, our business model ordinarily requires a very low level of capital expenditures, our net liquidity of $240 2 million at October 31, 2023 was slightly elevated compared with year in fiscal 2002.
Speaker 3: Our net liquidity of $240.2 million at October 31, 2023 was slightly elevated compared with year-end fiscal 2020.
'twenty three.
Since November 2021, we have returned a total of approximately $97 million to shareholders as we've repurchased approximately two 6 million shares of our common stock or approximately 16% of shares outstanding at the beginning of the program, which equates to an average price of $37.
Speaker 3: Since November 2021, we have returned a total of approximately 97 million to shareholders as we've repurchased approximately 2.6 million shares of our common stock or approximately 16% of shares outstanding at the beginning of the program, which equates to an average price of $37.38 per share.
38 per.
Per share.
Additionally, since fiscal 2017, we have paid $1 per share annually through quarterly cash dividends.
Speaker 3: Importantly, as I mentioned at the start of this call, in September , Argan's board increased the company's quarterly dividend by 20% from $0.25 to $0.30 per share, reflecting the strength of our business and our confidence in Argan's growth potential moving forward.
Importantly, as I mentioned at the start of this call in September are against board increased the company's quarterly dividend by 20% from 25.
230 per share, reflecting the strength of our business and our confidence in the organic growth potential moving forward.
Speaker 3: Argan has always been very focused on long-term value creation for shareholders.
Oregon has always been very focused on long term value creation for our shareholders. While our operating results can vary from quarter to quarter related to the timing of contracts. We remained focused on delivering long term value to shareholders.
Speaker 3: While our operating results can vary from quarter to quarter related to the timing of contracts, we remain focused on delivering long-term value to shareholders.
Speaker 3: Since 2008, we have increased our tangible book value and cumulative dividends per share considerably.
<unk> 2008, we have increased our tangible book value in cumulative dividends per share considerably.
Speaker 3: Our project backlog is a solid $0.7 billion as of October 31, 2023.
Our project backlog.
As a solid <unk> 7 billion as of October 31, 2023.
Speaker 3: The electrification of the economy is driving the need for dependable power grids and reliable energy sources.
The electrification of the economy is driving the need for dependable power grids and reliable energy sources from.
Speaker 3: from standard and emergency power usage to increased EV adoption and the accompanying charging requirements to enhance demand for data centers, more people are using more power for much longer periods of time than ever before.
From standard and emergency power usage to increase EV adoption and the accompanying charging requirements to enhance demand for data centers more people are using more power for much longer periods of time than ever before.
Speaker 3: With our capabilities and proven track record as a full service construction and project management partner for multiple types of power facilities, we are seeing heightened interest for our services and our pipeline is strong.
With our capabilities and proven track record as a full service construction and project management partner or multiple types of power facilities. We are seeing heightened interest for our services and our pipeline is strong.
Speaker 3: Importantly, our facility design and construction capabilities are energy agnostic, positioning Argonne as an ideal partner as the demand for liable power grids and enhanced emergency power resources is growing.
Importantly, our facility design and construction capabilities, our energy agnostic positioning the Oregon as an ideal partner as the demand for lab will power grids and enhanced emergency power resources is growing well.
Speaker 3: We're excited about the opportunities we're seeing to help the energy industry as it transitions to meeting this increased demand through the establishment of both low emissions and renewable sources of power.
We're excited about the opportunities we're seeing to help the energy industry as it transitions to meeting increased demand through the establishment of both low emissions and renewable sources of power.
Speaker 4: Looking forward, during the fourth quarter, we expect to receive full notices to proceed on several new renewable projects, are working hard to mitigate risk, and complete the Killroot project early in calendar 2024, and our execution remains solid across our other projects, including the full closeouts of both Guernsey and Maple Hill, which is expected in the fourth quarter. To close,
Looking forward during the fourth quarter, we expect to receive full notices to proceed on several new renewable projects are working hard to mitigate risk.
When complete the Kilroy project early in calendar 2024, and our execution remains solid across our other projects, including the full closeouts of both Guernsey and Maple Hill, which is expected in the fourth quarter.
To close.
We remain focused on our long term growth strategy.
Speaker 3: leverage our core competencies to capitalize on existing and emerging market opportunities.
Average, our core competencies to capitalize on existing and emerging market opportunities.
Speaker 3: Maintain disciplined risk management with the goal of improving our project management effectiveness and minimizing costly project overrun.
Maintained disciplined risk management with the goal of improving our project management effectiveness and minimizing costly project overruns.
Speaker 3: strengthen our position as a partner of choice in the construction of new low and net zero emission power generation facilities as the industry transitions to cleaner energy alternatives while maintaining grid reliability.
Strengthen our position as a partner of choice and the construction of new low and net zero emission power generation facilities as the industry transitions to cleaner energy alternatives, while maintaining grid reliability.
Speaker 3: And last but not least, drive organic growth while also being mindful of acquisition opportunities that make sense for our business through thoughtful capital allocation.
And last but not least drive organic growth, while also being mindful of acquisition opportunities that makes sense for our business through thoughtful capital allocation.
Speaker 3: I'd like to thank our shareholders for their continued support and our employees for their dedication and hard work in building Argonne to our position as a valued power industry partner. With that operator, let's open it up for questions at the start.
I'd like to thank our shareholders for their continued support and our employees for their dedication and hard work in building, Oregon to our position as a valued power industry partner.
With that operator, let's open it up for questions.
At this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.
Speaker 1: If you would like to ask a question, please press the star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your
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Speaker 1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
One moment, please while we poll for questions.
Our first question comes from Robert Brown with Lake Street Capital. Please proceed.
Good afternoon.
Good afternoon, Rob.
Speaker 6: First question, touching on Killroot and some of the challenges there, I guess the question is sort of how certain are you at this point that the charges you've taken are kind of it or how much is
Kind of first question touch on kill route in some of the challenges there.
I guess the question is sort of how how certain are you at this point that the charges you've taken are kind of at or how much is left to kind of go and how much is uncertain at this point.
Speaker 3: Yeah, Rob, we're we're doing everything we can to mitigate these losses. We have a challenging customer on a challenging project at the end of the day. We're continuing all efforts to resolve open variations, claims and appropriate extensions of time to mitigate these losses and improve the final result of this project.
Yeah, Rob where we're doing everything we can to mitigate these losses, we have a challenging customer on a challenging project at the end of the day.
All efforts to resolve open variations claims and appropriate extensions of time to mitigate these losses and improve the final result.
This project.
Speaker 3: I mean, we plan to vigorously pursue all of our rights under the contract, including through legal means if necessary. I mean, the good news is we are currently estimating that it is approximately 95% complete with design and construction. We have started commissioning on the facility and we expect to be ready for the first fire of both gas turbines by early 2024.
We plan to vigorously pursue all of our rights under the contract including through legal means if necessary I mean, the good news is and we are currently estimating that it is approximately 95% complete with design and construction. We have started commissioning on the facility and we expect to be ready for the first fire of both gas turbines by early 'twenty.
24.
Speaker 3: The determination of the amount of the loss recorded in Q3, which was a lot, includes our estimates of the realistic level of effort and the associated costs required for us to complete the project. And however, there can be no assurances that our overcoming the risk associated with this project won't cause us to incur unplanned future costs or to suffer unbearable contract variation.
The determination of the amount of the loss recorded in Q3.
Which which was a lot includes our estimates of the realistic level of effort and the associated costs required for us to complete the project.
And however, there can be no assurances that are overcoming the risk associated with this project won't cause us to incur.
Planned future cost or to suffer unfavorable contract variations.
Speaker 3: December , January , and February are going to be important months for us on the project, both operationally and contractually. We have some of our best team members throughout the Oregon organization focus on this. Again, we have a substantial number of valid claims, over 20 million, that we will be pursuing and hope to mitigate and improve current forecasts when successfully resolved. So, yes.
December January and February are going to be important months for us on the project, both operationally operationally and contractually.
We have some of our best team members throughout the Oregon organization focus on this.
Again, we have a substantial number of valid claims over $20 million that we will be pursuing and hope to mitigate and improve current forecast when successfully resolved so yes.
Speaker 3: To answer your question, there is possible downside, but there's also a possibility of upside.
To answer your question there is possible downside, but there is also a possibility of upside.
Speaker 6: Okay, okay, got it, got it. And then I guess in general, the sort of the some of these challenges in the European market kind of changes.
Okay, Okay got it.
Got it and then I guess in general.
There's sort of some of these challenges in the European market.
Since your strategy there or is this a one off situation.
Well it I mean.
Speaker 3: We believe we have a strong core business at APC. They do great with shutdowns, outages and maintenance works. And they're currently executing well on all our other larger projects, with the exception of Killroot. I know you're kind of alluding to Teesside. We've gone through both a leadership change since then and significant growth. You know, our revenues are up over 350 percent in two years.
We believe we have a strong core business at APC.
Do great with shutdowns outages and maintenance works in there currently executing well on all our other larger projects with the exception of kill route.
I know youre kind of alluding to T side, we've gone through both our leadership changed since then and significant growth our revenues are up over 350% in two years.
Speaker 3: So while we're still working to improve the process disciplines within APC, we are optimistic about the future of the subsidiary.
So while we are still working to improve the process disciplines within the APC, we are optimistic about the future of the subsidiary.
Speaker 3: Due to our work to improve process and discipline in a difficult market environment, which Europe has been for this, we do expect reduced revenues next fiscal year as we kind of solidify the business and modify our risk profile for market conditions now and into the future.
Due to our work to improve process and discipline in a difficult market environment, which has been for this we do expect reduced revenues next fiscal year as we kind of solidify the business and modify our risk profile for market conditions now and into the future.
Okay. Thank you.
Speaker 6: Thank you. And then on the new project pipeline, I think you talked about some formalities for Season Q.
And then and then on the New project pipeline I think you talked about.
Some full notice to proceed in Q4.
Yes could you characterize kind of the pipeline between the renewables and the gas plant a pipeline and then.
What's the sort of pipeline of.
Gas plants that you're also pursuing at this point and what's the outlook there.
Speaker 3: Yeah, well, I mean, our backlog, you know, stayed strong, and we do believe our pipeline is as well. You know, based on our current visibility into our pipeline, we do expect some additional large projects over the next nine months, and to your point, including getting full notices to proceed on some of our renewable jobs in Q4.
Yeah.
Our backlog stayed strong and we do believe our pipeline is as well.
Based on our current visibility into our pipeline, we do expect some additional large projects over the next nine months.
And then to your point, including getting full notices to proceed on some of our renewable jobs in Q4.
Speaker 3: The new work is going to be a mix of renewable and gas. We're primarily seeing gas-fired plant opportunities in the PJM, the MISO and ERCOT regions, which are basically the Midwest Texas to the Mid-Atlantic and Southeast.
The new work is going to be a mix of renewable and gas, we're primarily seeing gas fired plant opportunities in the PJM.
The MISO and aircraft regions, which are basically the Midwest, Texas to the mid Atlantic and southeast.
Speaker 3: and we ultimately expect to see our backlog meaningfully exceed where we are today. But as I've said before, you've got to keep in mind the starts of future project wins are controlled by the customer, which makes it difficult to forecast our backlog, given the material size of certain projects.
We ultimately expect to see our backlog meaningfully exceed where we are today.
But.
As I've said before you got to keep in mind. The starts of future project wins are controlled by the customer which makes it difficult to forecast our backlog given the material size of certain projects.
Speaker 3: uh... in thermal jobs always take longer and we would like but give me a development job you don't get into a boat job to the finish is not
Thermal jobs always take longer than we would like but getting it development job.
Although job to finish its not easy.
Speaker 3: the PJ auctions have further delayed to the summer of 2024.
P. J auctions are further delayed till the summer 2024.
So we.
Speaker 3: We expect a number of not just renewable, but gas jobs between now and through next year. But I do want to point out, you know, we added, without a major new job, 70 million of miscellaneous backlog during the quarter, which, you know, offset a lot of the 164 million of backlog that we converted to revenues, which demonstrates the benefits of an increasingly diversified organization.
We expect the number of not just renewable but gas jobs between now and through next year, but I do want to point out we we added without a major new job $70 million of miscellaneous backlog during the quarter, which offset a lot of the $164 million.
Our backlog that we converted to revenues, which demonstrates the benefits of our increasingly diversified organization.
Okay. Thank you I'll turn it over.
Thanks, Rob.
Speaker 1: If there are any questions, once again, please press star 1 on your touch tone phone. We appear to have no further questions in queue. Just one moment.
If there are any questions. Once again, please press star one on your Touchtone phone.
We appear to have no further questions in queue.
Just one moment, we actually have a question coming from Chris Moore.
With CGS Securities Chris Your line is live.
Terrific all right guys. Thanks for taking a few questions.
Speaker 7: uh... yet maybe maybe just stay with kill root for uh...
Yeah, maybe maybe just stay with kill route for a bit.
Speaker 7: You had, you know, for a while, I've been talking about that being a difficult project, even in the Q2, I think you estimated it was about 80 percent done, now it's about 95 percent. I'm just still trying to understand a little bit better in terms of, you know, what incrementally happened during the Q3 that drove this charge.
Hugh you had you know for a while I've been talking about that being a difficult project. It into Q2, I think you estimated it was about 80% done.
Now it's about 95%.
Still trying to understand a little bit better in terms of you know what incrementally happened during the Q3 that that drove this charge.
Speaker 3: Yeah, sure, Chris. So just to be clear, the 95% complete is with the design and construction. That's not the entire job that doesn't include commissioning, though we're definitely further, way north of 80% on that.
Yeah sure, Chris So just to be clear that the the 95% complete with the design and construction. That's that's not the entire job that doesn't include commissioning that we are definitely.
Further way north of 80% on that.
Speaker 3: Um, it's, there's just been a, a lot of changes in the, in the, the scope of this project that have just been difficult for us in, and frankly.
It's there's just been a a lot of changes in the in the scope of this project that have just been difficult for us and frankly.
Speaker 3: It's just been a really difficult customer to work with and we're doing our best to make it work because we want to have a successful project. And that just really kind of came to more of a head here during Q3, as well as as you get super close to the end of the job, there are a lot of risks at the end of the job, as you know, with any of our jobs that we do. And that's when things really kind of come to a head.
It's just been really difficult.
Customer to work with and we're doing our best to make it work because we want to have a successful project and that just really kind of came to more of a head here during Q3 as well as as you get Super close to the end of the job things. That's there are a lot of risk at the end of the job as you know with any of our jobs that we do.
And that's when things really kind of come to a head.
Got it I'll leave that one there maybe you could just help me with the math.
Speaker 7: Got it. I'll leave that one there. Maybe you could just help me with the math. Q3 gross margin without the Kilroyd issues would have been roughly where?
Q3 gross margin without the COVID-19 issues would've been roughly where.
Speaker 3: It would have been 8.8%, something like that. It was a really strong quarter across the business, with the exception of Kilroyd, which is no excuse.
It would've been eight point, yeah, I think henk eight 8% something like that it was it was a really strong quarter across the business with the exception of kill route which is no excuse.
Yeah.
Speaker 7: Got it. And is there, was there any excess Guernsey margin in Q3?
Got it and is there was there any excess Guernsey margin in Q3.
Yeah.
Speaker 3: We'll finish Guernsey in Q4, we did close out some items on Guernsey during Q3 and we also reached substantial completion on Maple Hill in Q4 here. So our expectation is both Guernsey and Maple Hill are going to be fully finished out in Q4, but yes we did close out some other items in Q3 for Guernsey.
Hmm.
We'll we'll finish Guernsey in Q4, we did close out some items on Guernsey during Q3, and we also reached substantial completion on Maple Hill.
In Q4 here. So our expectation is both Guernsey and Maple Hill are gonna be fully finished out in Q4, but yes, we did close out some other items in Q3 for currency.
Gotcha.
And maybe talk about Roberts really looks to be hitting stride at $38 million. This quarter is there anything different in the strategy today versus a few years ago. That's you know I feel that I think the last 10 or 11 quarters have been pretty strong.
Speaker 7: talk about roberts really looks to be hitting stride at thirty eight plus million this quarter is there anything different in the strategy today versus a few years ago that feel i think the last ten eleven quarters of a pretty strong
Speaker 3: Chris, I appreciate that question. Roberts has been a long process for me, for my years here at Argan, and I've just been really pleased to see where we are today on it.
Chris I appreciate that that question Roberts has been a a a long.
Process for me for my years here at our again and I've just been really pleased to see where we are today on it.
Speaker 3: uh... you know then roberts uh... generate over thirty million issue mentioned uh... it's generate over thirty million for the last three straight quarters for a total of a hundred two million which is more than all of last year
You know then Robert's it generated over $30 million as you mentioned.
Generate over 30 million for the last three straight quarters for a total of $102 million, which is more than all of last year.
Speaker 3: We strategically consolidated some of our business segments there. We consolidated two plants into one to reduce our cost.
We strategically consolidated some of our business.
Segment our business.
Segments, there, we consolidated two plants into one to reduce our cost and we've been focusing on doing field services, which has been a more profitable piece of that business. We've also.
Speaker 3: and we've been focusing on doing field services which has been a more profitable piece of that business. We've also made a change in leadership and we've we've also added to that leadership so we feel like we've got a really strong team in place for growth over the long run and you know as as you as you can see 102 million through three quarters.
Made a change in leadership and we've also added to that leadership. So we feel like we've got a really strong team in place.
<unk> growth over the long run and.
As you as you can see $102 million through three quarters.
Speaker 3: The run rate is north of 130, and the expectation is for this business to continue to grow.
The run rate run rate is north of 130, and the expectation is for this business to continue to grow.
Speaker 7: Got it, very helpful. I will leave it there, I appreciate it guys. Appreciate it Chris.
Got it very helpful. I will leave it there I appreciate it guys I appreciate it Chris.
Speaker 1: We have reached the end of the question and answer session. I will now turn the call over to David Watson for our closing remarks.
We have reached the end of the question and answer session.
I'll now turn the call over to David Watson for closing remarks.
Speaker 3: Thank you all for participating in today's call. Happy holidays to each of you and we look forward to speaking with you again when we report our Q4 fiscal 2024 earnings next year. Have a great evening.
Thank you all for participating in today's call.
Happy holidays to each of you and we look forward to speaking with you again, when we report our Q4 fiscal 'twenty 'twenty four earnings next year have a great evening.
Yeah.
Speaker 1: This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
Yes.
Okay.
Yeah.
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