Q1 2025 Argan Inc Earnings Call
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Good evening, ladies and gentlemen, and welcome to the Argon Inc. Earnings release Conference call for the first fiscal quarter ended April 30th 'twenty 'twenty for this call is being recorded all participants have been placed on 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.
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 ma'am.
Okay.
Thank you good evening and welcome to our conference call to discuss our against results for the first fiscal quarter ended April 32024 on the call today, we have David Watson, Chief Executive Officer, and Hey, Daly, Chief Financial Officer, I will take a moment to read the Safe Harbor statement statements made during this conference call and presented in the presentation that are not based on historic.
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. 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.
That could cause or contribute to such material differences have been described in this afternoons press release and in our against filings with the U S Securities and Exchange Commission. These statements are based on information and understandings 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.
I think it's first quarter of fiscal 2025 financial results and filed its corresponding Form 10-Q report with the Securities and Exchange Commission alright with that over the way I will turn the call over to David Watson CEO of our yen. Please go ahead David.
Thanks, Jennifer and thank you everyone for joining today I'll start by reviewing some of the highlights of our operations and activities and Hank Daily Our CFO will go over our financial results for the first fiscal quarter ended April 32024, then we'll open up the call for a brief Q&A.
Fiscal 2025 is off to a strong start as demonstrated by a 52% increase in consolidated revenues to $157 7 million improved profitability and EBITDA of $11 9 million.
Our growth was driven by significant way strong performance from both Gemma and Robert's company or Trc.
We were especially pleased to deliver this profit growth despite incurring a loss of $2 6 million in the quarter associated with continued challenges at APC Kilroy project in Northern Ireland, now private and update on that project in a moment.
Project backlog at the close of the first quarter was $824 million, which includes approximately $300 million in renewable projects first quarter 2025 backlog reflects both sequential growth compared to backlog of $757 million at the end of the fourth quarter of fiscal 2024 and year over year growth compared to backlog of.
$806 million in the first quarter of fiscal 2024.
At April 32024, our balance sheet reflected $416 million of cash and investments.
Liquidity of $247 million and no debt.
Before we move onto the operational overview for the first quarter provide an update on some developments with APC as government project.
As we've discussed on the last several earnings calls clearer encountered significant operational and contractual challenges as we move towards completion, including supply chain delays material changes to the project and work stoppages related to Covid among others.
During the first quarter APC turn it over to power units, one of which has achieved first fire.
Following the close of the quarter on May three 2024, as previously disclosed APC project and construction teams vacated the facility site, having served a termination notice to the customer.
Given the situation.
Limited in the details I can share at this point, but as we've previously mentioned argon is identified and submitted claims and the and access of $25 million related to this project and we will vigorously pursue those claims.
Now onto the operational review.
Slides four and five present, our three reportable business segments.
Our industry services is comprised of our German power systems, and Atlantic Project 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, our industry services revenues increased 57% to $110 3 million for the current quarter as compared to $70 2 million for the first quarter of fiscal 2020 for the segment.
Representing 70% of our first quarter revenues and reported pre tax book income of $9 2 million.
Industrial construction services, which is represented by Trc had another significantly strong quarter contributing $43 7 million or 28% of our first quarter consolidated revenues and reported pre tax book income of 4 million. These numbers represent a revenue growth of 44% and a pre.
Pre tax net income increase of 73% compared to the first quarter of 2024, we're seeing consistently strong demand for Trc services Trc.
Primarily provides solutions for industrial construction projects with a concentration in agriculture, petrochemical pulp and paper water and power and Trc is ideally suited.
As it project partner as many companies onshore or expand their U S manufacturing operations.
Likewise in addition to its capabilities Trc is well positioned geographically to service the South East region of the U S, which is a notably high growth region for Trc is focus industries. We are determined to drive continued growth of Trc as demand for new or refurbished industrial sites intensifies.
Finally, we have our telecommunications infrastructure services group, our smallest segment, which contributed 2% of our first quarter revenues.
Infrastructure solutions is our operating brand in this segment, providing outside construction services for the utility and telecommunications sectors as well as inside the premises wire and services, primarily for federal government locations and military installations required high level security clearance.
It would be hard to ignore the many recent reports, citing the actual unexpected significant increases in energy demand and power consumption.
<unk> infrastructure worldwide needs to be expanded and strengthened to meet anticipated increase capacity demands.
Particularly as more data centers come online to support AI applications, which consume very high amounts of energy. Additionally.
Additionally, with more electric vehicles, hitting the road more homes and public locations will install charging infrastructure further taxing the available power supply and <unk>.
Finally, we are seeing a 50 year high and the onshoring of manufacturing operations for semiconductors batteries solar panels and the other items driven by federal grants and tax incentives.
All of that production activity requires a reliable power supply.
Argon is uniquely positioned to expand its leadership role as new energy facilities are needed to support stable grids and reliable power generation with our proven and comprehensive capabilities in the construction and management of complex power facility projects for both traditional natural gas and renewable energy resources.
We can support the build out of the consistent and dependable power resources necessary for the efficient operation of new data centers manufacturing facilities and EV charging infrastructure.
Pipeline of opportunities is robust with both new and existing partners, who recognize our expertise and demonstrated success as a trusted design and construction partner for the power industry. We believe our diverse capabilities provide a competitive advantage as the industry moves to establish viable energy resources in the face of unprecedented.
Demand.
Our industry remains focused on the shift to cleaner and more reliable power resources and with our energy agnostic capabilities. We are a proven partner as the industry embraces alternative resources at the end of the first quarter, approximately $318 million or <unk>, 39% of our 824 million backlog.
Was renewable projects with 86% of our project backlog being comprised of projects that support zero or low carbon emissions.
<unk> increase in our renewables backlog reflects the effectiveness of our growth and diversity plan. However, we still believe expect gas fired and other thermal power plants to remain the core of our business for many years to come as we grow our overall power revenues.
Now I'd like to provide some project updates we continue to make excellent progress as we roll into peak construction on the Trumbull Energy Center project in Lordstown, Ohio, where Jim is providing EPC services for a 950 megawatt natural gas fired power plant.
Trimble has a combined cycle power station that will assist in fulfilling the electricity needs as the region phases out several coal fired plants from start to finish the project will entail design procurement construction and commissioning.
<unk> is designed to be one of the cleanest and most efficient combined cycle gas turbine projects in the PJM market and we expect to have completed in 2026.
As you know, we have three solar and battery projects underway in Illinois and at our last update in April we have received full notice to proceed on two of the three facilities.
I'm pleased to report that around the end of the first quarter. We received a full notice to proceed on the third facility.
So just to recap Jim is working on three facilities located throughout the state on the APC basis to provide 160 megawatt of solar power plus 22 megawatt battery storage capability.
These projects are exciting opportunities for us to continue to demonstrate our capabilities in the renewable energy space.
We are energized by the opportunities we're seeing in the marketplace and in our expanding potential new business pipeline. We are optimistic about the growing urgency to reinforce energy infrastructure to ensure a consistent and reliable power supply in the face of anticipated unprecedented consumption levels.
Our experience as a full service construction and project management partner with extensive capabilities that support both traditional and renewable power facilities. We believe argon is very well positioned to benefit as the industry transitions aging facilities and built new facilities to meet surging demand.
With that I'll turn the call over to Hank daily to take us through the first quarter financials go ahead Hank.
Thanks, David and good afternoon, everyone.
On slide 10, we present, our consolidated statements of earnings for the first quarter of fiscal 2025.
First quarter revenues increased 52% to $158 million, reflecting an increase in revenues from all of our operating segments as compared to the first quarter of fiscal 2024.
In the first quarter, our power industry services segment achieved a 57% increase in revenues primarily related to U S based projects, including the Trumbull Energy Center, and the Midwest solar and battery projects as well as projects overseas.
<unk> the Shannon Bridge power project in Ireland.
In our industrial construction services segment.
<unk> achieved revenues growth of 44% drip.
Driven by a substantial increase in field services construction activity.
And supporting steel fabrication work.
For the three months period ended April 32024.
<unk> reported consolidated gross profit of approximately $17 $9 million.
Which represented a gross profit percentage of approximately 11, 4% and.
And reflected positive contributions from all three reportable business segments.
Solidago gross profit for the comparative quarter ended April 32023.
Was $14 $2 million.
Representing a gross profit percentage of 13, 7%.
The decline in the gross profit percentage at our power industry services segment during the current period.
It was primarily due to the unfavorable gross profit adjustment.
On the kill route project and the amount of $2 $6 million.
But also due to the change in the mix of projects.
Including increased time and materials and renewable energy projects.
Selling general and administrative expenses of $11 4 million for the first quarter of fiscal 2025 increased slightly as compared to SG&A of $10.6 million for the comparable prior year period.
But these expenses decreased as a percentage of revenues for the corresponding periods from 10, 2% to seven 2%.
Net income for the first quarter of fiscal 2025 was $7 9 million or 58 cents per diluted share compared to $2 1 million or 16 cents per diluted share for last year's comparable quarter.
EBITDA.
Earnings before interest taxes, depreciation and amortization.
For the quarter ended April 32024 was 11 $9 million compared to $3 6 million reported for the same period of last year.
Before turning the call back over to David last but not waste I'd like to mention that other income for the three months ended April 32024 included investment income in the approximate pretax amounts of $4 5 million compared to $2 4 million.
In the same period of fiscal 2024.
With that I'll turn the call back to David.
Thanks.
Turning to slide 11, our consolidated project backlog of over <unk> 8 billion at April 32024 increased approximately 9% as compared to year end fiscal 2024.
Our backlog includes a healthy group of longer term fully committed projects in both the power industry services industrial services segments, and as mentioned earlier approximately $380 million of the backlog is comprised of renewable projects.
On Slide 12, we show certain major projects currently included in our project backlog.
I highlighted earlier our activity at the trouble of Energy Center in Ohio, and that all three solar plus battery projects in Illinois have received full notices to proceed.
Also included in our project backlog are two separate water treatment plant projects being performed by Trc.
Over in Ireland, three ESB Lux G&P from power plants in the Shannon British thermal plants are both in the final stages of construction and are undergoing commissioning.
We have certainly seen an increase in projects coming to market.
Related to the growing urgency to the power industry to ensure we have the appropriate facilities and infrastructure to meet the forecasted growth in energy demand.
For example in April 2024, Gemma executed a limited notice to proceed with the customer to construct a utility scale solar field in Illinois that will provide 405 megawatts of electrical power and will use preexisting transmission and utility infrastructure from a nearby retired coal power plant.
This project represents the largest solar project to date for us and the continued expansion of our renewable business.
In addition, subsequent to quarter end, we have a letter of intent.
To enter into a subcontract with a full notice to proceed immediately to install 590 megawatt gas turbines for an LNG facility in Louisiana. This project led by Jim <unk> will be a collaboration with Trc and APC, representing our ability to bring comprehensive solutions to market in a short period of <unk>.
Time.
Our backlog is robust with a diverse group of projects that show our range of capabilities and highlights our reputation as an effective and reliable industry partner.
Our balance sheet remains strong.
At April 32024, we had over $400 million in cash cash equivalents and investments generating meaningful investment yields as Henk mentioned previously our net liquidity was $247 million and we had no debt stockholders equity was $293 million at April 32024.
As you can see from this liquidity bridge, our business model ordinarily requires a low level of capital expenditures, our net liquidity of $246 7 million at April 32024 has increased $1 8 million compared with the end of fiscal 2024.
Since November 2021, we have returned a total of approximately $101 2 million to shareholders as we repurchased approximately two 7 million shares of our common stock or approximately 17% of our shares outstanding at the beginning of the program.
An average price of $37 60 per share.
Additionally, separate September 2023, we increased the company's quarterly dividend, 20% from 25.
<unk> 30 per share, reflecting the strength of our business and increasing our annual run rate to $1 20 per share.
Or again is dedicated to driving long term value creation for our shareholders. 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.
Since 2008, we have increased our tangible book value in cumulative dividends per share considerably.
Rguest capabilities expertise and proven track record have established us as a trusted partner for the full service construction and project management of both traditional and gas fired as well as renewable energy facilities.
We are focused on leveraging our strong reputation to win new opportunities from both new customers and legacy partners as the industry intensifies its efforts to ensure the availability of reliable energy resources moving forward.
Our pipeline is strong and diverse as we continue to move through fiscal 2025. We believe we are extremely well positioned to expand our leadership role as a partner of choice for the design and construction of the power resources needed to address increasing consumption demands driven by data centers manufacturing facilities in <unk>.
Sure.
To close we remain focused on our long term growth strategy.
Leveraging our core competencies to capitalize on existing and emerging market opportunities.
Maintain disciplined risk management, the goal of improving our project management effectiveness and minimizing costly project overruns.
Strengthen our position as a partner of choice and the construction of up low and net zero emission power generation facilities as the industry transition to cleaner energy alternatives, while maintaining grid reliability and last but not least drive organic growth I also being alert for acquisition opportunities that makes sense.
Our our business through thoughtful capital allocation.
We have delivered a strong start to fiscal 2025, and we're focused on building on the progress achieved in the first quarter as always our success relies on the hard work and dedication of our employees as they make operational excellence a priority as always I'd like to thank our shareholders for their continued support and.
As a reminder, please don't forget to vote your shares for our upcoming annual meeting of stockholders on June 20th and I look forward to seeing folks there.
In summary, the current power demand environment is presenting tremendous opportunities to our again and we are intent on leveraging our capabilities and growing our relationships as a partner of choice to the power and industrial markets.
With that operator, let's open it up for questions.
Certainly at this time, we'll be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypads, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, please press star one on your phone at this time, if you wish to ask a question.
Please hold while we poll for questions.
And once again that is star one if you wish to ask a question. Your first question today is coming from Chris Moore from CJS Securities. Chris Your line is live.
Hey, good afternoon, guys. Thanks for taking a couple of questions.
First congrats on another nice quarter.
I know you're limited Hill road it sounds like you know you're you're hopeful that there's.
$25 million in potential recovery out there.
You took the $2 $6 million charge in Q1.
Are there likely or possible additional charges coming.
Sure. That's a good question and before I answer that I did want to quickly note to folks I wanted to apologize if the folks who are trying to get onto our website right now.
Appears that we're having a surge in traffic and my team is actively trying to resolve the issues as soon as possible.
But back to your question, Chris on potential more losses on Colorado, I mean, we have recorded.
$12 7 million loss on the project, which is significant and disappointing.
We consider all things and making our best efforts and make our best efforts to get the accounting right based on the information available.
I mean as we disclose additionally, after quarter end the customer pulled our letter of credit in the amount of $9 2 million, which we believe was inappropriate.
APC has significant unresolved contract variations in extension of time claims among others related to this project and amounts exceeding 25 million and this is expected to increase materially.
The project owner has asserted counterclaims that we dispute.
Again, we will continue to pursue all of our rights under the contract and we will do so through legal means a possible so to answer your question.
Yes, there is a possibility of downside, but that's also a possibility of upside.
Fair enough I'll leave that one there are it looks like Trumbull is starting to make good progress can you talk a little bit about the cadence of the project I mean do you expect that over the balance of the current fiscal year, you'll be approaching kind of peak quarterly revenue or just.
You know kind of how you see this ramping.
We do this this project remains right on schedule and we're excited about it and executing well on it and we do expect to be in peak activity.
Throughout the year.
As it gets into startup and commissioning later next year.
Got it it looks like the project pipeline as well.
And in good shape the the the <unk>.
405 megawatt solar project that you have limited notice to proceed.
What has to happen to begin construction.
In fiscal 'twenty five on that.
It's really just a matter of getting the full notice to proceed I mean, the limit notice to proceed has already enabled us to start doing a number of things are all limited notices to proceed are different. Some we are already mobilizing others were just doing procurement activities.
The goal with the limit notice to proceed is to be able to start executing the project right away for the customer. So that's a project since it's the renewable projects that we expect to too.
Start to be actively in a full notice to proceed this summer.
Got it and maybe just last one for me you referenced a letter of intent on a it looks like significant gas project at the end of Q4, you talked about a gas project I thought that one was in Texas. This is Louisiana is this a different projects that we're talking about.
It is a different project the Texas project is.
We're still continuing to work with the customer to get to the finish line on that job and get the EPC contract and the notice to proceed.
As you know the timing of those are always challenging, but I think it's worth noting that there were.
Over 40, Gigawatts of gas fired power units that submitted.
Into the Texas Energy fund to get low interest loans. So there is a significant appetite.
And support from from Texas for gas fired projects in the Texas area as it relates to this other opportunity where we had the.
Letter of intent.
Two two.
Part of a sub contract.
To install 590 megawatt gas turbines within the LNG facility and we're excited about that project and believe it's a project that has it very quick.
Start and significant ramp up.
Yeah.
Like a emergency job, where it's a quick one.
Got it that's helpful. I will leave it there I appreciate it sure thanks, Chris.
Thank you I'm once again Thats star one if you wish to ask a question. The next question is coming from Rob Brown from Lake Street Capital markets. Rob Your line is live.
Hi, good afternoon.
Good afternoon.
Just wanted to follow up a little bit more on the pipeline.
Activity in could you kind of characterize how the pipeline is at this point of how active it is and maybe the changes in the in the.
The new project pipeline that you've seen over the winter.
Six months or so.
Sure I mean, we're thrilled with our pipeline I mean since January.
Rob We've received three full notices to proceed and one limited notice to proceed on renewed.
Renewable jobs totaling 565 megawatts of solar power in 22 megawatts of battery storage.
We do expect to receive a full notice to proceed.
Speaking with Chris earlier.
That subcontract for installing those gas turbines in Louisiana.
And based on what we have signed and based on current visibility we expect it to add some additional large projects over the course of the year, which will represent a mix of both renewable and gas and as you can see we've already seen it.
Meaningful increase in our renewables relative to gas with $318 million of backlog as of $4 30.
Okay, Great. Thank you and then Illinois, Louisiana project, you just talked a little bit about timing, but as you know.
How would that compare to a traditional gas.
<unk> plant project in terms of the cycle that that revenue flows through your through your business. Once it's launched and sounds like it's gonna lunch fairly quickly, but some color on timing compared to regular gasoline.
Yeah, I mean, it's a totally different project with the our fixed price EPC contracts, where we're doing combined cycle projects that are three to three and a half years long.
And we do that from start to finish and control all aspects of the job that that has that bell curve revenue flow similar to.
Trumbo being at the peak of the Bell curve right now.
This job is it's more surgical and.
Subcontracts. So it's it it's one of those jobs that should be relatively.
Quick burn over a shorter period of time.
Okay, Okay great.
Then on the.
Battery.
And solar projects that you do.
Interest rates again, how you how those work in terms of.
What are you what you flow through your revenue and how how much of that project that you you take note of is that a fully full.
EPC project.
Yeah. So so some of these projects are full EPC jobs and others are are lesser a lot and some projects. The one the project owner buys the solar panels and others, we buy the solar panels.
At the end of the day.
You know where were already.
Piling, putting in piles and bolting solar arrays together on a number of these jobs and so you know.
From a cash cash revenue standpoint, they they they are typically less than a year long, but the 405 megawatt job is going to be much longer than that just given the sheer size and scope of it.
So I don't know if that answered your question or not Rob.
Yes, that's what I.
I was getting at thank you very much I'll turn it over.
Thank you and that does conclude or Q&A session for today I would like to hand, the call back to David Watson for closing remarks.
Well. Thank you all for participating in today's call. We look forward to speaking with you again, when we report our second fiscal quarter ending July 31.
2024, and have a great evening, thanks, everybody.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and have a wonderful day. Thank you for your participation.