Q3 2025 Argan Inc Earnings Call
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Speaker Change: Good evening, ladies and gentlemen, and welcome to the Oregon, Inc. Earnings Release Conference Call for the third fiscal quarter ended October 31st, 2024. This call is being recorded. All participants have been placed on a listen-only mode. Following a 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 webcast.
Speaker Change: At this time, it is my pleasure to turn the floor over to your host for today, Jennifer Belodeau of IMF Investor Relations. Please go ahead.
Jennifer Belodeau: Thank you. Good evening and welcome to our conference call to discuss Argan's results for the third fiscal quarter and at October 31, 2024. On the call today we have David Watson, Chief Executive Officer, and Josh Bacher, Chief Financial Officer.
Speaker Change: I will take a moment to read the Safe Harbor Statements.
Speaker Change: Statements made during this conference column 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. These statements are subject to known and unknown factors and risks.
Speaker Change: 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 Argan's filings with the U.S. Securities and Exchange Commission.
Speaker Change: 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
Speaker Change: Earlier this afternoon, the company issued a press release announcing its third quarter fiscal 2025 financial results and filed its corresponding Form 10-Q report with the Securities and Exchange Commission.
Speaker Change: Okay, with that out of the way, I will turn the call over to David Watson, CEO of Argan. Go ahead, David.
David Watson: Thanks, Jennifer, and thank you everyone for joining today. I'll start by reviewing some of the highlights of our operations and activities, and Josh Bacher, our CFO, will go over our financial results for the third fiscal quarter ended October 31st, 2024.
Then we'll open up the call for a brief Q&A.
David Watson: Our third quarter results were the second highest in company history, and I'm very proud of our team's accomplishment. We are looking forward to continued success in the coming years.
David Watson: We delivered strong execution in the quarter, as evidenced by consolidated revenue growth of 57% to $257 million, with gross margin of 17.2%.
David Watson: Substantially improved net income of $28 million or $2 per diluted share in EBITDA of $37.5 million.
David Watson: Our power services segment had a particularly strong quarter as evidenced by revenue growth of 75%
David Watson: to $212 million with a gross margin of 18.3 percent, demonstrating our ability to drive enhanced profitability on our renewable as well as on our natural gas projects.
David Watson: TRC has delivered a solid quarter with revenue growth of 8%, and our telecommunications segment recorded revenue performance consistent with last year's third quarter.
David Watson: Project backlog of $0.8 billion at the close of the quarter represents an increase of 6% compared to backlog at the beginning of the year and includes $470 million of renewable projects, reflecting the market appeal of our energy agnostic capabilities and our ability to diversify our backlog mix.
David Watson: Additionally, our balance sheet reflected $506 million of cash and investments, net liquidity of $281 million, and no debt at October 31, 2024.
David Watson: During the quarter, our Board of Directors approved a 25% increase in our quarterly dividend amount to $0.37.5 per common share or $1.50 annually from the previous quarter dividend amount of $0.30 per common share.
David Watson: This increase comes just one year after our previous dividend raise.
David Watson: and reflects our confidence in the business and our favorable view of the growing pipeline of opportunities we're seeing as the industry mobilizes to build the facilities, both traditional gas-fired and renewable, that will be needed to meet the anticipated surge in energy demand that has been widely projected.
Now on to the operational review.
Slides four and five present our three reportable business segments.
David Watson: Power Industry Services is comprised of our GEMMA Power Systems and Alletica 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.
David Watson: Power Industry Services revenues increased 75% to $212 million for the current quarter as compared to $121.3 million for the third quarter of fiscal 2024. The segment represented 83% of our third quarter revenues and reported pre-tax book income of $36 million.
David Watson: Industrial Construction Services, which is represented by TRC, had a solid quarter with revenue growth of 8% to $41.3 million or 16% of our third quarter consolidated revenues and pre-tax book income of $2.7 million.
TRC primarily provides solutions for
David Watson: with a concentration in agriculture, petrochemical, pulp and paper, water and power, and has seen a great deal of market interest for our capabilities as a project partner as many companies onshore or expand their U.S. manufacturing operations.
David Watson: TRC has a strong footprint in the southeast region of the U.S. which is a notably high growth region for its focus industries.
David Watson: Finally, we have our Telecommunications Infrastructure Services Group, our smallest segment, which contributed 1% of our third quarter revenues.
SMC Infrastructure Solutions is our
David Watson: providing outside construction services for the utility and telecommunications sectors, as well as inside-the-premises wiring services primarily for federal government locations and military installations requiring high-level security clearance.
David Watson: During the past year, we've commented, and many media and industry publications have noted, that energy demand in the U.S. and around the globe is expected to grow substantially in the near term.
David Watson: In the U.S., as more data centers come online and manufacturing operations are reshored, our power grid is going to need additional energy resources to function reliably and securely in generating high-quality power to meet 24-7 demand.
David Watson: Additionally, EVs are steadily increasing as a percentage of new cars sold, and with that growth, we can expect more homes and commercial spaces to install EV chargers, adding another element of demand to the power grid.
David Watson: With these considerations in mind, it is widely acknowledged that energy infrastructure needs to be expanded and strengthened to meet anticipated increased capacity demands.
with our energy agnostic capabilities.
David Watson: Argan is uniquely positioned to facilitate the construction of any type of power facility, so as it has become more evident that the most efficient way to ensure stable grids and reliable power generation is through a combination of traditional gas-fired power plants as well as renewables, we're well suited for any and all projects that bolster energy generation.
David Watson: We're optimistic about the pipeline of opportunities we're seeing and look forward to playing a leading role in the ensuing build-out of the power resources we need in order to meet the expected significant growth in demand.
David Watson: We have been a long-time leader in supporting the establishment of cleaner power resources.
David Watson: Renewable projects represented approximately 478 million of our 0.8 billion backlog at October 31st, 2024 and 92% of our current project backlog supports zero or low carbon emissions.
David Watson: Over the last few years, the company has intentionally diversified our backlog to include increasing portion of renewable projects.
David Watson: Nonetheless, we expect gas-fired and other thermal power plants to remain the core of our business for many years to come, especially as the industry seeks to provide consistent and high-quality power sources.
David Watson: We are committed to adding additional power plant construction jobs over the next eight months, and will focus on executing for our customers while growing our team to ensure we're well-staffed for the opportunities ahead.
David Watson: As I mentioned earlier, our team drove strong execution this quarter, and I'd like to provide some project updates.
David Watson: Gemma is at Peak Construction on the Trumbull Energy Center project in Lordstown, Ohio, where we're providing EPC services for a 950 megawatt natural gas-fired power plant.
David Watson: Trumbull is a combined cycle power station that will assist in fulfilling electricity needs as the region phases out several coal-fired plants.
David Watson: From start to finish, the project will entail design, procurement, construction, and commissioning.
David Watson: Trumbull is designed to be one of the cleanest and most efficient combined cycle gas turbine projects in the PJM market and we expect to complete it in the fourth quarter of fiscal 2026.
David Watson: A shorter-term project we're currently working on is for the installation of five 90-megawatt gas turbines at a LNG facility in Louisiana.
David Watson: This is a GEMMA-run project with collaboration from both TRC and APC and demonstrates our ability to bring comprehensive solutions to the market quickly. We began this LNG project earlier this year and expect completion during calendar 2025.
David Watson: We also have full notice to proceed on a utility-scale solar field in Illinois that will provide 405 megawatts of electrical power and will use pre-existing transmission and utility infrastructure from a nearby retired coal power plant.
David Watson: Spanning more than 2,000 acres, this is our largest solar project to date.
David Watson: Given the current energy demand environment, it is an opportune time to be an established, well-regarded, full-service construction partner with proven expertise for both traditional and renewable power projects.
David Watson: We're excited by the pipeline of opportunities we're seeing, and optimistic about what the future holds for Arkan.
Speaker Change: With that, I'll turn the call over to Josh Bacher to take us through the third quarter financials. Go ahead, Josh.
Josh Bacher: Thanks, David, and good afternoon, everyone. On slide 11, we present our consolidated statements of earnings for the third quarter of fiscal 2025.
Josh Bacher: Third quarter revenues increased 57% to $257 million, reflecting particularly strong performance in our power industry services segment and solid growth in our industrial construction segment as compared to the third quarter of fiscal 2024, as David detailed earlier.
Josh Bacher: Project-wise, the increase in revenue is primarily related to increased quarterly construction activities for the Midwest Solar and Battery Projects, the Trumbull Energy Center, the 405 megawatt Midwest Solar Project, and Louisiana LNG facility.
Josh Bacher: For the three-month period ended October 31st, 2024, Argan reported consolidated gross profit of approximately $44.3 million, which represented a gross margin of approximately 17.2% and reflected contributions for all three reportable business segments.
Josh Bacher: Consolidated gross profit for the comparative quarter ended October 31, 2023 was $19.2 million.
representing a gross margin of 11.7%.
Josh Bacher: The increased gross profit and improved gross margin percentage for the current year quarter reflects the changing mix of projects, including increased U.S.-based revenues, strong execution, and certain positive job closeouts.
Josh Bacher: During the prior year, third quarter, gross profit was negatively impacted by a loss on the Killroot Project, which reduced gross profit by approximately $10.7 million.
Josh Bacher: Selling general and administrative expenses of $14 million for the third quarter of fiscal 2025 increased as compared to FG&A of $11.4 million for the comparable prior year period.
Josh Bacher: But these expenses decreased as a percentage of revenues to 5.4% of the third quarter of fiscal 2025 as compared to 6.9% of the third quarter of fiscal 2024.
Josh Bacher: Net income for the third quarter of this fiscal year was $28 million or $2 per diluted share compared to $5.5 million or $0.40 per diluted share for the last year's comparable quarter.
Josh Bacher: EBITDA, Earnings Before Interest, Taxes, Depreciation, and Amortization, for the quarter ended October 31st, 2024, was $37.5 million, compared to $12.2 million reported for the same period of last year.
Josh Bacher: Other income for the three months ended October 31st, 2024, was $6.6 million and included investment income of $4.8 million compared to other income of $3.7 million in the prior year period.
Josh Bacher: Looking at our year-to-date performance, revenues for the first nine months of fiscal 2025 increased by 57 percent to 642 million as compared to revenues of 409 million for the prior year period.
Josh Bacher: The overall improvement in revenues was due to increased revenues in all three of our reportable segments.
Josh Bacher: Our consolidated gross margin of 14.6% for the first nine months of the fiscal 2025 increased as compared to gross margin of 14% in the first nine months of fiscal 2024, primarily due to the same reasons described for the quarter.
Josh Bacher: Gross margins in our power industry services, our industrial services, and our telecommunications infrastructure services statements.
or 14.8%?
Josh Bacher: 12.5% and 26.8% respectively for the first nine months of fiscal 2025 as compared to 14%, 12.8%, and 25.1% respectively for the first nine months of the prior fiscal year.
Josh Bacher: SG&A expenses increased to $37.8 million for the first nine months of fiscal 2025 as compared to $32.5 million for the first nine months of fiscal 2024, but decreased 25% as a percentage of revenues.
Josh Bacher: Net income for the first nine months of this fiscal year was $54.1 million, or $3.91 per diluted share compared to $20.3 million, or $1.50 per diluted share for the first nine months of last fiscal year.
Josh Bacher: EBITDA was $74.2 million for the first nine months ended October 31st, 2024, compared with EBITDA of $33.8 million for the first nine months of fiscal 2024.
With that, I'll turn the call back to David.
Thanks, Josh.
David Watson: Turning to slide 12, our consolidated project backlog was $0.8 billion at October 31, 2024, representing growth of 6% compared to the prior fiscal year-end.
David Watson: As expected, backlog is down slightly sequentially from the $1 billion recorded at July 31, 2024 due to the conversion of backlog into revenue and the timing of new project contracts and starts.
David Watson: Nonetheless, as I've said in the past, while the project pipeline continues to strengthen, it takes some time to win and negotiate the contracts for the large and complex projects we compete for.
David Watson: Our backlog includes a healthy group of longer-term, fully committed projects in both the power industry services and industrial services segments, and, as I mentioned earlier, approximately $478 million of the backlog is comprised of renewable projects.
David Watson: On slide 13, we show certain major projects currently included in our project backlog.
David Watson: Earlier, I discussed the Trumbull Energy Center in Ohio, and we continue to make progress at the three Solar Plus battery projects in Illinois, which have full notices to proceed.
David Watson: Additionally, we have the full notice to proceed on a utility-scale solar field in Illinois that will provide 405 megawatts of electrical power.
David Watson: On this slide, you'll also see our full notice to proceed on the subcontract to install five 90 megawatt gas turbines to provide dedicated power to an LNG facility in Louisiana.
David Watson: We've included here a 1.2 gigawatt natural gas project in Texas that is currently under letter of intent and we've listed two separate water treatment plant projects being performed by TRC.
David Watson: Over in Ireland, the three ESB FlexGen Peaker power plants and the Shannon Bridge thermal plants are complete.
David Watson: There is undoubtedly growing urgency around standing up the infrastructure we need to meet the forecasted growth in energy demand and as a result the industry is seeing strong demand particularly for natural gas projects.
David Watson: We believe our backlog illustrates the scope of our expertise and capabilities, and the ongoing demand for our services around traditional gas-fired builds and renewable projects.
David Watson: Our balance sheet remains strong. At October 31st, 2024, we had approximately $506 million in cash, cash equivalents, and investments generating meaningful investment yields.
David Watson: Our net liquidity was $281 million and we had no debt.
Stockholders' equity was $329 million at October 31st, 2024.
David Watson: This liquidity bridge demonstrates that our business model ordinarily requires a low level of capital expenditures.
David Watson: Our net liquidity of $281 million at October 31, 2024 has increased $36.1 million compared with net liquidity at January 31, 2024.
David Watson: Since November 2021, we have returned a total of approximately $101.6 million to shareholders.
David Watson: as we've repurchased approximately 2.7 million shares of our common stock, or approximately 17% of shares outstanding at the beginning of the program, at an average price of $37.67 per share.
Additionally, in September 2024, we
David Watson: to $37.5 cents per share, reflecting the strength of our business and increasing our annual run rate to $1.50 per share. This increase comes just a year after we raised our dividend to $0.30 per share in September of 2023.
David Watson: Together, these two dividend increases represent an aggregate 50% increase in our annual dividend run rate in less than two years.
David Watson: Our company is dedicated to driving long-term value creation for shareholders.
David Watson: While our operating results can vary from quarter to quarter related to the timing of contracts, our pipeline is stronger than it has ever been, and we remain focused on delivering long-term value to shareholders.
David Watson: Since 2008, we have increased our tangible book value and cumulative dividends per share considerably.
David Watson: This is a very exciting time for our company. With the forecasted significant growth in energy demand, Argonne is one of only a few companies with the capabilities and experience to build all types of power facilities.
Speaker Change: JIMMA is well known as a partner of choice for not only complex combined cycle natural gas plants, but also for its expertise with renewable projects.
Speaker Change: Both types of energy resources will need to be built in the coming years to meet the projected demand for reliable, high-quality power, and we stand ready to help our customers build them.
To close, we remain focused on our long-term growth strategy.
Speaker Change: Leverage our core competencies to capitalize on existing and emerging market opportunities.
Speaker Change: Maintain Disciplined Risk Management with the goal of improving our project management effectiveness and minimizing costly project overruns.
Speaker Change: Strengthen our position as a partner of choice in the construction of low and net zero emission power generation facilities as the industry transitions to cleaner energy alternatives while maintaining grid reliability.
Speaker Change: And last but not least, drive organic growth while also being alert for acquisition opportunities that make sense for our business through thoughtful capital allocation.
Speaker Change: To date, in fiscal 2025, we have delivered strong execution across our business segments, and we remain focused on driving the momentum we're seeing in our industry and our business.
Speaker Change: We are energized to continue leveraging our core skill set and proven track record to maximize the opportunities we're seeing across our pipeline of traditional natural gas-fired and renewable power projects.
Speaker Change: Additionally, as the reshoring and We're also seeing a robust project pipeline for our industrial segment.
Speaker Change: I'd like to thank our employees for their dedication to executing each job on time and on budget and to thank our shareholders for their continued support.
With that, Operator, let's open it up for questions.
Speaker Change: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press 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 would like to remove your question from the queue.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Once again, please press star 1 on your phone if you wish to ask a question. One moment please while we pull for questions.
Speaker Change: The first question today is coming from Chris Moore from CJS Securities. Chris, your line is live.
Chris Moore: Good afternoon, guys. That was an impressive quarter, that's for sure. Thanks, Chris. All right, maybe we can start with gross margins. The overall gross margin was probably...
Chris Moore: 300 basis points higher than I was thinking about. Power industry services 18.3 percent. It's early for Trumbull to be getting, you know, excess margins. So can you break down a little bit further, you know, where that 18.3 percent in power industry came from?
Speaker Change: Yeah, I mean, in short, Chris, strong execution across the board, certain positive project closeouts, the project mix in the shift towards domestic revenues, and economies of scale.
Speaker Change: You've heard me say this before, but we are first and foremost focused on project success.
Speaker Change: and success for our customers is the number one way to get repeat business in future gross margins.
So, you know, based on our
Speaker Change: You know historically I've told you we fluctuate between 13 and 20 percent based on our 1031 project backlog which is significantly larger portion of TNM and renewable work than we normally have. Gross marginal like to be more in line
Speaker Change: with the average of the last two quarters we just completed, meaning kind of in that 14 to 16 percent range, or slightly higher over the next couple of quarters. But this quarter was really strong, and it really came down to strong execution.
Got it. That makes sense. I appreciate that.
Speaker Change: You have previously discussed being able to handle, you know, perhaps four to five
Speaker Change: of Construction. What's the limiting factor? Is it skilled labor and how much of a crossover is the labor pool between the natural gas projects and your renewable projects?
Speaker Change: Yeah, I mean we've been making headway by adding headcount to the business in anticipation of this natural gas build-out in addition to maintaining our renewable footprint and continuing to execute really strongly there.
Speaker Change: Is there some crossover between gas and renewable? The answer is yes, but primarily we're trying to keep...
Speaker Change: the renewable teams together and the gas teams together, but we do have certain labor that has the skill set to do both, including project managers.
Speaker Change: So the number of projects that we can do at any given time holistically is kind of in that, probably that 10 plus range, if you kind of blend the gas and renewables, and of course it depends on the size of projects as well.
That makes sense.
Speaker Change: backlog 800 million down about 200 million you had indicated that likely after q2
Speaker Change: Expectations? I know you're looking for some big projects in calendar 25. Expectations for Q4? Probably down a little bit further before coming back in calendar 25? Or just any thoughts there?
Speaker Change: Yeah, if you recall last quarter I kind of gave some guidance of five to ten months as kind of the general timeline. We're now sitting here in the beginning of December and the guidance that I said earlier in my prepared remarks was
Speaker Change: You know, we're expecting to start multiple gas fire jobs over the course of the next eight months And expect our backlog to be significantly in excess of a billion by early next year and beyond so
Y-y-yes, you can.
Speaker Change: Note, I've dropped the lower end of the floor, so we're working really hard, but you've got to remember, we don't control the start of these new projects, but we really remain bullish as to our ability to convert a number of these opportunities in the jobs again over the course of the next eight months.
Speaker Change: Got it. I'll leave it there. Appreciate it. Absolutely. Thank you. And once again, it will be Star 1 if you wish to ask a question today. The next question is coming from Rob Brown from Lake Street Capital. Rob, your line is live.
Rob Brown: since you last updated things. Is it the same projects you're working on and timing's always hard to predict or are there new things kind of coming in and is activity sort of increasing in terms of bidding and work and stuff?
Thank you very much.
Speaker Change: There continues to be new opportunities that come in, and the opportunities are throughout the United States with a large nexus in Texas, as you can imagine.
Speaker Change: A lot of the jobs that we have been tracking and or negotiating continue to progress.
Speaker Change: through all their development hurdles. And so we remain really excited about what things look like for us over the coming eight months and then looking out further. So I would say that the...
Speaker Change: I guess in short the the level activity remains extremely elevated.
Speaker Change: Yep, okay. And then in the Texas gas plant in particular that you have an LOI for,
What's the timing of that?
and is that at 2025.
Thank you. Thank you. Thank you.
Thank you.
Speaker Change: Yeah, and I guess as a reminder to all the callers, I mean we will, if there is a new job we will always kind of put out either a press release and or an 8k as because we want to provide updates since these jobs are meaningful. So as for that Texas job that we have the letter of intent on, we can again, they continue to meet their developmental milestones and
Speaker Change: and we have been working closely with them to help them with that and hope to have an executed EPC contract and start at least doing some work on that job over the next couple of months.
Speaker Change: Okay, great. And then maybe on the kind of the backlog burn rate on the solar projects versus the gas projects, what's the
Speaker Change: It's kind of your average, your typical Coralie herb, you know, if you have so much.
Speaker Change: Backlog in solar, how long does it take to burn off versus a gas job?
Speaker Change: Yeah, that's a tough question to answer because we have different sized solar jobs and they tend to burn at different rates typically though. The more small to medium sized solar jobs and small solar jobs for us are still relatively meaningful. They're going to typically burn at different rates.
Speaker Change: be completed within a year, a little bit longer than that, but for our larger solar jobs, they can last a couple of years, if not a little bit more. So yeah, I think that their consistency of revenue
Speaker Change: backlog converting into revenue is a little bit more even versus the the more peakishness of a of a gas job since gas jobs are really reflect a bell curve of revenue solar jobs are a little bit more consistent
Speaker Change: Okay, great. Thank you. That's helpful. Let me maybe on the industrial business a little bit.
continue to grow into a $200 million annual revenue business.
and the environment, you know, support that sort of direction.
Yes, I mean they, they...
Speaker Change: Generated 41 million of revenues this this past quarter and and they've generated 175 million of revenues on a TTM basis.
um...
Speaker Change: But, you know, to what you're pointing out, their backlog has dropped down to about 66 million or so.
and based on current visibility, I do...
Speaker Change: kind of expect revenues to come down some for the next couple of quarters for the segment and that backlog may continue to reduce some before rebounding in Q1 and Q2 of fiscal 2026.
Speaker Change: And that's really based on the expected timing of future project awards, as I just had a long call with my team there this morning and they're super excited about the number of opportunities that they're seeing and have already bid right now. And so we do expect for there to be a meaningful rebound there.
Okay, great. Thank you. I'll turn it over.
Okay.
Speaker Change: Thank you. There were no other questions at this time. I would now like to hand the call back to David Watson for closing remarks.
David Watson: Well, thank you all for participating in today's call, and I hope everyone had a great Thanksgiving. We wish everyone a happy and healthy holiday season and look forward to speaking with you again when we report our fourth quarter fiscal 2025 results. Have a great evening.
Speaker Change: Thank you. This does conclude today's conference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.
Speaker Change: and the first time I've seen this video, I've been watching this video for a long time.