10-Q 1 agx-20231031x10q.htm 10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

October 31, 2023

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

For the Transition Period from                      to                     

Commission File Number 001-31756

Graphic

(Exact Name of Registrant as Specified in Its Charter)

Delaware

    

13-1947195

(State or Other Jurisdiction of Incorporation)

(I.R.S. Employer Identification No.)

One Church Street, Suite 201, Rockville, Maryland 20850

(Address of Principal Executive Offices) (Zip Code)

(301) 315-0027

(Registrant’s Telephone Number, Including Area Code)

(Former Name, Former Address and Former Fiscal Year, if Changed since Last Report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the “Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   þ    No  

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).    Yes  þ    No  

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer   Accelerated filer þ  Non-accelerated filer   Smaller reporting company   Emerging growth company 

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Title of Each Class

    

Trading Symbol(s)

    

Name of Each Exchange on Which Registered

Common Stock, $0.15 par value

AGX

New York Stock Exchange

Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.

Common stock, $0.15 par value: 13,327,866 shares as of December 1, 2023.

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

    

Three Months Ended

Nine Months Ended

October 31, 

October 31, 

    

2023

    

2022

    

2023

    

2022

REVENUES

$

163,755

$

117,875

$

408,779

$

336,262

Cost of revenues

 

144,520

 

95,667

 

351,578

 

269,929

GROSS PROFIT

 

19,235

 

22,208

 

57,201

 

66,333

Selling, general and administrative expenses

 

11,375

 

12,667

 

32,467

 

34,226

INCOME FROM OPERATIONS

 

7,860

 

9,541

 

24,734

 

32,107

Other income, net

 

3,733

 

768

 

7,222

 

1,868

INCOME BEFORE INCOME TAXES

 

11,593

 

10,309

 

31,956

 

33,975

Income tax expense

 

6,129

 

2,551

 

11,616

 

14,510

NET INCOME

 

5,464

 

7,758

 

20,340

 

19,465

Foreign currency translation adjustments

(882)

(650)

(627)

(2,601)

Net unrealized losses on available-for-sale securities

(427)

(1,147)

COMPREHENSIVE INCOME

$

4,155

$

7,108

$

18,566

$

16,864

NET INCOME PER SHARE

Basic

$

0.41

$

0.56

$

1.52

$

1.36

Diluted

$

0.40

$

0.56

$

1.50

$

1.36

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic

 

13,328

 

13,781

 

13,381

 

14,268

Diluted

 

13,559

 

13,812

 

13,549

 

14,350

CASH DIVIDENDS PER SHARE

$

0.30

$

0.25

$

0.80

$

0.75

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except per share data)

    

October 31, 

    

January 31, 

    

2023

    

2023

(Unaudited)

(Note 1)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$

185,569

$

173,947

Investments

211,946

151,511

Accounts receivable, net

 

49,922

 

50,132

Contract assets

 

25,391

 

24,778

Other current assets

 

41,243

 

38,334

TOTAL CURRENT ASSETS

 

514,071

 

438,702

Property, plant and equipment, net

 

10,786

 

10,430

Goodwill

 

28,033

 

28,033

Intangible assets, net

2,315

2,609

Deferred taxes, net

3,132

3,689

Right-of-use and other assets

5,315

6,024

TOTAL ASSETS

$

563,652

$

489,487

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable

$

34,532

$

56,375

Accrued expenses

 

83,193

 

49,867

Contract liabilities

 

156,169

 

96,261

TOTAL CURRENT LIABILITIES

 

273,894

 

202,503

Noncurrent liabilities

4,925

6,087

TOTAL LIABILITIES

 

278,819

 

208,590

COMMITMENTS AND CONTINGENCIES (see Notes 7 and 8)

STOCKHOLDERS’ EQUITY

Preferred stock, par value $0.10 per share – 500,000 shares authorized; no shares issued and outstanding

 

 

Common stock, par value $0.15 per share – 30,000,000 shares authorized; 15,828,289 shares issued; 13,332,747 and 13,441,590 shares outstanding at October 31, 2023 and January 31, 2023, respectively

 

2,374

 

2,374

Additional paid-in capital

 

163,154

 

162,208

Retained earnings

 

217,486

 

207,832

Less treasury stock, at cost – 2,495,542 and 2,386,699 shares at October 31, 2023 and January 31, 2023, respectively

(93,531)

(88,641)

Accumulated other comprehensive loss

(4,650)

(2,876)

TOTAL STOCKHOLDERS’ EQUITY

 

284,833

 

280,897

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

563,652

$

489,487

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE AND NINE MONTHS ENDED OCTOBER 31, 2023 AND 2022

(Dollars in thousands)

(Unaudited)

Common Stock

Additional

Accumulated Other

    

Outstanding

    

Par

    

Paid-in

    

Retained

    

Treasury

    

Comprehensive

    

Non-controlling

    

Total

Shares

Value

Capital

Earnings

Stock

Loss

Interest

Equity

Balances, August 1, 2023

 

13,353,653

$

2,374

$

162,323

$

216,009

$

(92,329)

$

(3,341)

$

$

285,036

Net income

 

5,464

5,464

Foreign currency translation loss

(882)

(882)

Net unrealized losses on available-for-sale securities

(427)

(427)

Stock compensation expense

1,198

1,198

Stock option exercises and restricted stock unit settlements, net of shares withheld for exercise price and withholding taxes

 

21,747

(367)

527

160

Common stock repurchases

(42,653)

(1,729)

(1,729)

Cash dividends

 

(3,987)

(3,987)

Balances, October 31, 2023

 

13,332,747

$

2,374

$

163,154

$

217,486

$

(93,531)

$

(4,650)

$

$

284,833

Balances, August 1, 2022

13,884,195

$

2,374

$

160,229

$

193,205

$

(73,573)

$

(4,402)

$

(797)

$

277,036

Net income

7,758

7,758

Foreign currency translation loss

(650)

(650)

Stock compensation expense

1,076

1,076

Common stock repurchases

 

(308,423)

(10,084)

(10,084)

Cash dividends

(3,396)

(3,396)

Balances, October 31, 2022

13,575,772

$

2,374

$

161,305

$

197,567

$

(83,657)

$

(5,052)

$

(797)

$

271,740

Balances, February 1, 2023

 

13,441,590

$

2,374

$

162,208

$

207,832

$

(88,641)

$

(2,876)

$

$

280,897

Net income

 

20,340

20,340

Foreign currency translation loss

(627)

(627)

Net unrealized losses on available-for-sale securities

(1,147)

(1,147)

Stock compensation expense

3,416

3,416

Stock option exercises and restricted stock unit settlements, net of shares withheld for exercise price and withholding taxes

 

103,598

(2,470)

3,577

1,107

Common stock repurchases

(212,441)

(8,467)

(8,467)

Cash dividends

 

(10,686)

(10,686)

Balances, October 31, 2023

 

13,332,747

$

2,374

$

163,154

$

217,486

$

(93,531)

$

(4,650)

$

$

284,833

Balances, February 1, 2022

15,257,688

$

2,368

$

158,190

$

188,690

$

(20,405)

$

(2,451)

$

(797)

$

325,595

Net income

19,465

19,465

Foreign currency translation loss

(2,601)

(2,601)

Stock compensation expense

3,055

3,055

Stock option exercises and restricted stock unit settlements

39,099

6

60

66

Common stock repurchases

(1,721,015)

(63,252)

(63,252)

Cash dividends

(10,588)

(10,588)

Balances, October 31, 2022

13,575,772

$

2,374

$

161,305

$

197,567

$

(83,657)

$

(5,052)

$

(797)

$

271,740

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

    

Nine Months Ended October 31, 

    

2023

    

2022

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

20,340

$

19,465

Adjustments to reconcile net income to net cash provided by (used in) operating activities

Stock compensation expense

3,416

3,055

Changes in accrued interest on investments

(1,876)

(790)

Depreciation

1,524

2,296

Lease expense

 

1,335

 

1,871

Deferred income tax expense (benefit)

497

(209)

Amortization of intangible assets

 

294

 

611

Equity in loss (income) of solar energy investments

130

(1,112)

Other

 

157

 

20

Changes in operating assets and liabilities

Accounts receivable

 

168

 

(10,921)

Contract assets

(613)

(6,647)

Other assets

 

(2,977)

 

6,184

Accounts payable and accrued expenses

 

9,960

 

(7,952)

Contract liabilities

59,908

(78,859)

Net cash provided by (used in) operating activities

 

92,263

 

(72,988)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of short-term investments

(115,000)

(249,750)

Maturities of short-term investments

159,750

190,000

Purchases of available-for-sale securities

(104,492)

Purchases of property, plant and equipment

 

(2,143)

 

(2,582)

Net cash used in investing activities

 

(61,885)

 

(62,332)

CASH FLOWS FROM FINANCING ACTIVITIES

Common stock repurchases

(8,467)

(63,252)

Payments of cash dividends

 

(10,686)

 

(10,588)

Proceeds from share-based award settlements

 

1,107

 

66

Net cash used in financing activities

 

(18,046)

 

(73,774)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

(710)

(5,313)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

11,622

 

(214,407)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

173,947

350,472

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

185,569

$

136,065

NON-CASH INVESTING AND FINANCING ACTIVITIES

Right-of-use assets obtained in exchange for lease obligations

$

706

$

935

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes

$

7,022

$

6,310

Cash paid for operating leases

$

1,340

$

1,869

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

OCTOBER 31, 2023

(Tabular dollar amounts in thousands, except per share data)

(Unaudited)

NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION

Description of the Business

Argan, Inc. (“Argan”) conducts operations through its wholly-owned subsidiaries, Gemma Power Systems, LLC and affiliates (“GPS”); The Roberts Company, Inc. (“TRC”); Atlantic Projects Company Limited and affiliates (“APC”) and Southern Maryland Cable, Inc. (“SMC”). Argan and these consolidated subsidiaries are hereinafter collectively referred to as the “Company.”

Through GPS and APC, the Company provides a full range of engineering, procurement, construction, commissioning, maintenance, project development, and technical consulting services to the power generation market. The customers include primarily independent power producers, public utilities, power plant equipment suppliers and other commercial firms with significant power requirements with customer projects located in the United States (the “U.S.”), the Republic of Ireland (“Ireland”) and the United Kingdom (the “U.K.”). GPS and APC represent the Company’s power industry services reportable segment. Through TRC, the industrial construction services reportable segment provides on-site services that support new plant construction and additions, maintenance turnarounds, shutdowns and emergency mobilizations for industrial operations primarily located in the Southeast region of the U.S. and that may include the fabrication, delivery and installation of steel components such as piping systems and pressure vessels. Through SMC, which conducts business as SMC Infrastructure Solutions, the telecommunications infrastructure services segment provides project management, construction, installation and maintenance services to commercial, local government and federal government customers primarily in the Mid-Atlantic region of the U.S.

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and a variable interest entity (“VIE”) prior to its deconsolidation in the fourth quarter of the year ended January 31, 2023. All significant inter-company balances and transactions have been eliminated in consolidation. In Note 14, the Company has provided certain financial information relating to the operating results and assets of its reportable segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions.

The Company’s fiscal year ends on January 31 each year. The condensed consolidated balance sheet as of October 31, 2023, the condensed consolidated statements of earnings and stockholders’ equity for the three and nine months ended October 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the nine months ended October 31, 2023 and 2022 are unaudited. The condensed consolidated balance sheet as of January 31, 2023 has been derived from audited consolidated financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto, and the independent registered public accounting firm’s report thereon, that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023 (“Fiscal 2023”).

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of the financial position of the Company as of October 31, 2023, and its earnings and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.

6

Recently Issued Accounting Pronouncements

In March 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (“ASU 2023-02”), which provides an election to account for tax equity investments using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of the tax credits and other tax benefits received and presented net as a component of income tax expense. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company’s investments in energy tax credit structures entered into prior to Fiscal 2023 do not qualify for the proportional amortization method allowed under this guidance.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures introducing key amendments to enhance disclosures in public entities’ reportable segments. Notable changes include the mandatory disclosure of significant segment expenses regularly provided to the chief operating decision maker (“CODM”), disclosure of other segment items, and requirements for consistency in reporting measures used by the CODM. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects, if any, that the adoption of ASU 2023-07 may have on its financial position, results of operations, cash flows, or disclosures.

There are no other recently issued accounting pronouncements that have not yet been adopted that the Company considers material to its condensed consolidated financial statements.

Available-For-Sale Securities

At each balance sheet date, available-for-sale (“AFS”) securities are stated at fair value, as presented below, with unrealized gains and losses, net of income taxes, reported as a component of accumulated other comprehensive loss. Interest income, accretion of discounts, amortization of premiums, and realized gains and losses are included in other income or expense, as applicable, in the Company’s condensed consolidated statement of earnings. The Company determines the cost of securities sold based on the specific identification method. The Company determines the appropriate classification of AFS securities based on whether they represent the investment of cash available for current operations, as defined in Accounting Standards Codification (“ASC”) 210-10-45-1 and ASC 210-10-45-2. The classification of the AFS securities is reevaluated at each balance sheet date.

The Company evaluates whether a decline in the fair value of AFS securities below amortized cost basis is credit-related or due to other factors. If the Company intends to sell the AFS security or it is more likely than not that the Company would be required to sell the AFS security before recovery, impairment is recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. If a portion of the unrealized loss is credit-related, the impairment is recorded as an allowance on the balance sheet with a corresponding adjustment to earnings. Credit recovery is recorded as an adjustment to the allowance and earnings in the period in which credit conditions improve.

Fair Values

ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and to minimize the use of unobservable inputs when measuring fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs are quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3 – Inputs are unobservable inputs based on a company’s own assumptions.

7

The following table shows the Company’s financial instruments as of October 31, 2023 and January 31, 2023 that are measured and recorded at fair value on a recurring basis:

October 31, 2023

January 31, 2023

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

    

Inputs

    

Inputs

Inputs

    

Inputs

Inputs

    

Inputs

Cash equivalents:

Money market fund

$

127,022

$

$

$

68,647

$

$

Available-for-sale securities:

U.S. Treasury notes

94,700

U.S. corporate debt security

9,217

Totals

$

127,022

$

103,917

$

$

68,647

$

$

The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s other current assets, including cash, certificates of deposit (“CDs”), accounts receivable and contract assets, and its current liabilities are reasonable estimates of their fair values due to the short-term nature of these items

Treasury Stock

Treasury stock is recorded using the cost method. Incremental direct costs to purchase treasury stock, including excise tax, are included in the cost of the shares acquired. The Company uses the average cost method to account for treasury stock. For shares of treasury stock provided for settlements or sold at a price higher than its cost, the gain is recorded to additional paid-in capital. For shares of treasury stock provided for settlements or sold at a price lower than its cost, the loss is recorded to additional paid-in capital to the extent there are previous net gains included in the account. Any losses in excess of that amount are recorded to retained earnings.

NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS

The Company’s accounting for revenues on contracts with customers is based on a single comprehensive five-step model that requires reporting entities to:

1.Identify the contract,
2.Identify the performance obligations of the contract,
3.Determine the transaction price of the contract,
4.Allocate the transaction price to the performance obligations, and
5.Recognize revenue.

The Company focuses on the transfer of the contractor’s control of the goods and/or services to the customer. When a performance obligation is satisfied over time, the related revenues are recognized over time. The Company’s revenues are recognized primarily under various types of long-term construction contracts, including those for which revenues are based on either a fixed-price or a time-and-materials basis, and primarily over time as performance obligations are satisfied due to the continuous transfer of control to the project owner or other customer.

Revenues from fixed-price contracts, including portions of estimated gross profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the cost-to-cost approach. If, at any time, the estimate of contract profitability indicates an anticipated loss on a contract, the Company will recognize the total loss in the reporting period in which it is identified and the loss amount becomes estimable. Revenues from time-and-materials contracts are recognized when the related services are provided to the customer. For a project being performed by APC to construct a gas-fired power facility in Northern Ireland, an estimated loss at completion of approximately $7.9 million was recognized during the quarter ended October 31, 2023. Accordingly, APC recorded a loss during the three-month period ended October 31, 2023, in the amount of approximately $10.7 million, which includes an unfavorable adjustment of estimated gross profit of approximately $2.8 million recorded in previous periods. For the nine-month period ended October 31, 2023, the recorded loss related to the contract is $11.5 million, which includes an unfavorable adjustment of estimated gross profit recorded in the prior year in the amount of approximately $3.6 million. This project is expected to be completed by APC early next year.

8

Predominantly all of the Company’s fixed-price contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist, they are not typically distinct within the context of such contracts because contract promises included therein are interrelated or the contracts require the Company to perform critical integration so that the customer receives a completed project. Warranties provided under the Company’s contracts with customers are assurance-type primarily and are recorded as the corresponding contract work is performed.

The transaction price for a customer contract represents the value of the contract awarded to the Company that is used to determine the amount of revenues recognized as of the balance sheet date. It may reflect amounts of variable consideration which could be either increases or decreases to the transaction price. These adjustments can be made from time-to-time during the period of contract performance as circumstances evolve related to such items as changes in the scope and price of contracts, claims, incentives and liquidated damages.

The Company’s timing of revenue recognition may not be consistent with its rights to bill and collect cash from project owners and other customers. Most contracts require payments as the corresponding work progresses that are determined in the manner described therein. Those rights are generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of work or when services are performed. On most of the Company’s large contracts, milestone billings that occur early in the corresponding contract terms typically are made in advance of certain significant and related costs being incurred. This results in typically larger contract liability balances early in contract lives that decline over the terms of the corresponding contracts. During the three and nine months ended October 31, 2023 and 2022, there were no significant unusual or one-time adjustments to contract liabilities.

The balances of the Company’s accounts receivable represent amounts billed to customers that have yet to be collected and represent an unconditional right to receive cash from its customers. Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Contract liabilities include amounts that reflect obligations to provide goods or services for which payment has been received. The amounts of revenues recognized during the nine months ended October 31, 2023 and 2022, that were included in the balances of contract liabilities as of January 31, 2023 and 2022, respectively, were approximately $94.2 million and $127.6 million, respectively. The amounts of revenues recognized during the three months ended October 31, 2023 and 2022 that were included in the balances of contract liabilities as of July 31, 2023 and 2022, respectively, were approximately $53.8 million and $48.7 million, respectively.

Contract retentions are billed amounts which, pursuant to the terms of the applicable contract, are not paid by customers until a defined phase of a contract or project has been completed and accepted. These retained amounts are reflected in contract assets or contract liabilities depending on the net contract position of the particular contract. Retention amounts and the length of retention periods may vary. Retainage amounts related to active contracts are considered current regardless of the term of the applicable contract; such amounts are generally collected by the completion of the applicable contract. The amounts retained by project owners and other customers under construction contracts at October 31, 2023 and January 31, 2023 were $19.2 million and $49.1 million, respectively.

Variable Consideration

Amounts for unapproved change orders for which the Company has project-owner directive for additional work or other scope change, but not for the price associated with the corresponding additional effort, are included in the transaction price when it is considered probable that the applicable costs will be recovered through a modification to the contract price. The effects of any revision to a transaction price can be determined at any time and they could be material. The Company also includes in the corresponding transaction price an estimate of the amount that it expects to receive from a claim based on management’s judgment regarding all reasonably available information. Once a final amount has been determined, the transaction price may be revised again to reflect the final resolution. At October 31, 2023 and January 31, 2023, the aggregate amounts of such unapproved change orders included in the transaction prices that were still pending customer approval were $6.7 million and $11.6 million, respectively. Variations related to the Company’s contracts typically represent modifications to the existing contracts and performance obligations and do not represent new performance obligations. Actual costs related to any changes in the scope of the corresponding contract are expensed as they are incurred. Changes to total estimated contract costs and losses, if any, are reflected in operating results for the period in which they are determined.

9

The Company’s long-term contracts typically have schedule dates and other performance objectives that if not achieved could subject the Company to liquidated damages. These contract requirements generally relate to specified activities that must be completed by an established date or by the achievement of a specified level of output or efficiency. Each applicable contract defines the conditions under which a project owner may be entitled to any liquidated damages. At the outset of each of the Company’s contracts, the potential amounts of liquidated damages typically are not subtracted from the transaction price as the Company believes that it has included activities in its contract plan, and the associated forecasted contract costs, that will be effective in preventing such damages. Of course, circumstances may change as the Company executes the corresponding contract. The transaction price is reduced by an applicable amount when the Company no longer considers it probable that a future reversal of revenues will not occur when the matter is resolved. The Company considers potential liquidated damages, the costs of other related items and potential mitigating factors in determining the adequacy of its regularly updated estimates of the amounts of gross profit expected to be earned on active projects.

In other cases, the Company may have the grounds to assert liquidated damages against subcontractors, suppliers, project owners or other parties related to a project. Such circumstances may arise when the Company’s activities and progress are adversely affected by delayed or damaged materials, challenges with equipment performance or other events out of the Company’s control where the Company has rights to recourse, typically in the form of liquidated damages. In general, the Company does not adjust the corresponding contract accounting until it is probable that the favorable cost relief will be realized. Such adjustments have been and could be material.

The Company records adjustments to revenues and profits on contracts, including those associated with contract variations and estimated cost changes, using a cumulative catch-up method. Under this method, the impact of an adjustment to the amount of revenues recognized to date is recorded in the period that the adjustment is identified. Estimated variable consideration amounts are determined by the Company based primarily on the single most likely amount in the range of possible consideration amounts. Revenues and profits in future periods of contract performance are recognized using the adjusted amounts of transaction price and estimated contract costs.

Remaining Unsatisfied Performance Obligations (“RUPO”)

Substantially all of the Company’s customer contracts include the right for customers to terminate contracts for convenience. The value of future work that the Company is contractually obligated to perform pursuant to active customer contracts should not be included in the disclosure of RUPO when the corresponding contracts include termination for convenience clauses without substantial penalties accruing to the customers upon such terminations. Management assesses whether the nature of the work being performed under contract is largely service-based and repetitive and should be considered a succession of one-month contracts for the duration of the identified term of the contract. These types of arrangements do not qualify as RUPO. Predominantly, the Company’s customers contract with the Company to construct assets, to fabricate materials or to perform emergency maintenance or outage services where management believes substantial penalties or costs would be incurred upon a termination for convenience including the costs of terminating subcontracts, canceling purchase orders and returning or otherwise disposing of delivered materials and equipment. The value of RUPO on customer contracts represents amounts based on contracts or orders received from customers that the Company believes are firm and where the parties are acting in accordance with their respective obligations. The cancellation or termination of contracts for the convenience of customers has not had a material adverse effect on our consolidated financial statements.

At October 31, 2023, the Company had RUPO of $0.7 billion. The largest portion of RUPO at any date usually relates to engineering, procurement and construction (“EPC”) service and other construction contracts with typical performance durations of one to three years. However, the length of certain significant construction projects may exceed three years. The Company estimates that approximately 21% of the RUPO amount at October 31, 2023 will be included in the amount of consolidated revenues that will be recognized during the remainder of the fiscal year ending January 31, 2024 (“Fiscal 2024”). Most of the remaining amount of the RUPO amount at October 31, 2023 is expected to be recognized in revenues during the fiscal years ending January 31, 2025 and January 31, 2026.

It is important to note that estimates may be changed in the future and that cancellations, deferrals, or scope adjustments may occur related to work included in the amount of RUPO at October 31, 2023. Accordingly, RUPO may be adjusted to reflect project delays and cancellations, revisions to project scope and cost and foreign currency exchange fluctuations, or

10

to revise estimates, as effects become known. Such adjustments to RUPO may materially reduce future revenues below Company estimates.

Disaggregation of Revenues

The following table presents consolidated revenues for the three and nine months ended October 31, 2023 and 2022, disaggregated by the geographic area where the corresponding projects were located:

    

Three Months Ended October 31, 

    

Nine Months Ended October 31, 

2023

    

2022

2023

    

2022

United States

$

92,066

$

81,810

$

239,866

$

256,031

Republic of Ireland

 

68,359

 

21,833

 

139,014

 

47,019

United Kingdom

 

3,330

 

14,232

 

29,899

 

33,212

Consolidated Revenues

$

163,755

$

117,875

$

408,779

$

336,262

The major portions of the Company’s consolidated revenues are recognized pursuant to fixed-price contracts with most of the remaining portions earned pursuant to time-and-material contracts. Consolidated revenues are disaggregated by reportable segment in Note 14 to the condensed consolidated financial statements.

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS

Cash and Cash Equivalents

The Company considers all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At October 31, 2023 and January 31, 2023, certain amounts of cash equivalents were invested in a money market fund with net assets invested in high-quality money market instruments, including U.S. Treasury obligations; obligations of U.S. government agencies, authorities, instrumentalities or sponsored enterprises; and repurchase agreements secured by U.S. government obligations. Dividend income related to money market investments is recorded when earned. The balances of accrued dividends at October 31, 2023 and January 31, 2023 were $0.5 million and $0.3 million, respectively.

Investments

The Company’s investments consisted of the following as of October 31, 2023 and January 31, 2023:

    

October 31, 

January 31, 

2023

    

2023

Short-term investments

$

108,029

$

151,511

Available-for-sale securities

103,917

Total investments

$

211,946

$

151,511

Short-Term Investments

Short-term investments as of October 31, 2023 and January 31, 2023 consisted solely of CDs with weighted average maturities of one year or less purchased from Bank of America, N.A. (the “Bank”). The Company has the intent and ability to hold the CDs until they mature, and they are carried at cost plus accrued interest. Interest income is recorded when earned and is included in other income. At October 31, 2023 and January 31, 2023, the weighted average annual interest rates of the outstanding CDs were 5.4% and 2.5%, respectively. The balances of accrued interest on the CDs at October 31, 2023 and January 31, 2023 were $3.0 million and $1.8 million, respectively.

11

Available-For-Sale Securities

AFS securities as of October 31, 2023 consisted of U.S. Treasury notes and a U.S. corporate debt security with original maturities of two or three years. The Company’s AFS securities consisted of the following amounts of amortized cost, allowance for credit losses, gross unrealized gains and losses and estimated fair value by contractual maturity as of October 31, 2023:

October 31, 2023

Allowance for

Gross

Gross

Estimated

Amortized

Credit

Unrealized

Unrealized

Fair

    

Cost

    

Losses

    

Gains

    

Losses

    

Value

U.S. Treasury notes:

Due in one to two years

$

50,282

$

$

3

$

357

$

49,928

Due in two to three years

45,514

742

44,772

U.S. corporate debt security:

Due in two to three years

9,268

51

9,217

Totals

$

105,064

$

$

3

$

1,150

$

103,917

As of October 31, 2023, interest receivable in the amount of $0.8 million is included in the balance of AFS securities. For the three and nine months ended October 31, 2023, the change in net unrealized holding losses for the Company’s AFS securities reported in other comprehensive income was approximately $0.4 million and $1.1 million, respectively. For the three and nine months ended October 31, 2023, there were no sales of the Company’s AFS securities, and therefore, there were no amounts of gains or losses reclassified out of other comprehensive income into net income. The Company does not believe the unrealized losses represent credit losses based on the evaluation of evidence as of October 31, 2023, which includes an assessment of whether it is more likely than not the Company will be required to sell or intends to sell the investment before recovery of the investment’s amortized cost basis.

Concentration Risk

The Company has a substantial portion of its cash on deposit in the U.S. with the Bank or invested in CDs purchased from the Bank. In addition, the Company has cash invested in a money market fund at a separate institution. The Company also maintains certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the U.K. in support of the operations of APC. As of October 31, 2023, approximately 23% of the Company’s cash and cash equivalents were held by financial institutions in Ireland and the U.K. Management does not believe that the combined amount of the CDs and the cash deposited with the Bank, cash invested in the money market fund, and cash balances maintained at financial institutions in Ireland and the U.K., in excess of government-insured levels, represent material risks.

NOTE 4 – ACCOUNTS RECEIVABLE

The Company generally extends credit to a customer based on an evaluation of the customer’s financial condition, without requiring tangible collateral. Customer payments on other construction, fabrication and field service contracts are generally due within 30 to 60 days of billing, depending on the negotiated terms of the corresponding contract. Exposure to losses on accounts and notes receivable is expected to differ due to the varying financial condition of each customer. The Company monitors its exposure to credit losses and may establish an allowance for credit losses based on management’s estimate of the loss that is expected to occur over the remaining life of the particular financial asset. The amounts of the provision for credit losses for the three and nine months ended October 31, 2023 and 2022 were insignificant. The allowance for credit losses at October 31, 2023 and January 31, 2023 was $1.8 million.

NOTE 5 – INTANGIBLE ASSETS

At both October 31, 2023 and January 31, 2023, the goodwill balances related primarily to the GPS and TRC reporting units, and were $18.5 million and $9.5 million, respectively. Management does not believe that any events or circumstances occurred or arose since January 31, 2023, that required an updated assessment of the goodwill balances of either the GPS or TRC reporting units.

12

The Company’s intangible assets, other than goodwill, relate primarily to the industrial construction services segment and consisted of the following as of October 31, 2023 and January 31, 2023:

October 31, 2023

January 31, 2023

Estimated

Gross

Accumulated

Net

Gross

Accumulated

Net

    

Useful Life

    

Amounts

    

Amortization

    

Amounts

    

Amounts

    

Amortization

    

Amounts

Trade names

15 years

$

4,499

$

2,375

$

2,124

$

4,499

$

2,150

$

2,349

Customer relationships

10 years

916

725

191

916

656

260

Totals

$

5,415

$

3,100

$