10-Q 1 agx-20240430x10q.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

April 30, 2024

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: 13,354,332 shares as of May 31, 2024.

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

Three Months Ended

April 30, 

    

2024

    

2023

REVENUES

$

157,682

$

103,675

Cost of revenues

 

139,738

 

89,451

GROSS PROFIT

 

17,944

 

14,224

Selling, general and administrative expenses

 

11,425

 

10,591

INCOME FROM OPERATIONS

 

6,519

 

3,633

Other income (loss), net

 

4,794

 

(629)

INCOME BEFORE INCOME TAXES

 

11,313

 

3,004

Income tax expense

 

3,431

 

895

NET INCOME

$

7,882

$

2,109

OTHER COMPREHENSIVE INCOME, NET OF TAXES

Foreign currency translation adjustments

(790)

440

Net unrealized losses on available-for-sale securities

(969)

(37)

COMPREHENSIVE INCOME

$

6,123

$

2,512

NET INCOME PER SHARE

Basic

$

0.59

$

0.16

Diluted

$

0.58

$

0.16

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic

 

13,257

 

13,413

Diluted

 

13,572

 

13,546

CASH DIVIDENDS PER SHARE

$

0.30

$

0.25

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)

    

April 30, 

    

January 31, 

    

2024

    

2024

(Unaudited)

(Note 1)

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$

207,738

$

197,032

Investments

208,618

215,373

Accounts receivable, net

 

59,960

 

47,326

Contract assets

 

54,385

 

48,189

Other current assets

 

43,625

 

39,259

TOTAL CURRENT ASSETS

 

574,326

 

547,179

Property, plant and equipment, net

 

10,825

 

11,021

Goodwill

 

28,033

 

28,033

Intangible assets, net

2,120

2,217

Deferred taxes, net

2,305

2,259

Right-of-use and other assets

6,799

7,520

TOTAL ASSETS

$

624,408

$

598,229

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable

$

66,448

$

39,485

Accrued expenses

 

60,721

 

81,721

Contract liabilities

 

200,429

 

181,054

TOTAL CURRENT LIABILITIES

 

327,598

 

302,260

Noncurrent liabilities

3,655

5,030

TOTAL LIABILITIES

 

331,253

 

307,290

COMMITMENTS AND CONTINGENCIES (see Notes 8 and 9)

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; 13,350,180 and 13,242,520 shares outstanding at April 30, 2024 and January 31, 2024, respectively

 

2,374

 

2,374

Additional paid-in capital

 

164,501

 

164,183

Retained earnings

 

229,364

 

225,507

Less treasury stock, at cost – 2,478,109 and 2,585,769 shares at April 30, 2024 and January 31, 2024, respectively

(97,728)

(97,528)

Accumulated other comprehensive loss

(5,356)

(3,597)

TOTAL STOCKHOLDERS’ EQUITY

 

293,155

 

290,939

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

624,408

$

598,229

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 MONTHS ENDED APRIL 30, 2024 AND 2023

(Dollars in thousands)

(Unaudited)

Common Stock

Additional

Accumulated Other

    

Outstanding

    

Par

    

Paid-in

    

Retained

    

Treasury

    

Comprehensive

    

Total

Shares

Value

Capital

Earnings

Stock

Loss

Equity

Balances, February 1, 2024

 

13,242,520

$

2,374

$

164,183

$

225,507

$

(97,528)

$

(3,597)

$

290,939

Net income

 

7,882

7,882

Foreign currency translation loss

(790)

(790)

Net unrealized losses on available-for-sale securities

(969)

(969)

Stock compensation expense

1,211

1,211

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

 

113,260

(893)

(13)

(906)

Common stock repurchases

(5,600)

(187)

(187)

Cash dividends

 

(4,025)

(4,025)

Balances, April 30, 2024

 

13,350,180

$

2,374

$

164,501

$

229,364

$

(97,728)

$

(5,356)

$

293,155

Balances, February 1, 2023

13,441,590

$

2,374

$

162,208

$

207,832

$

(88,641)

$

(2,876)

$

280,897

Net income

2,109

2,109

Foreign currency translation gain

440

440

Net unrealized losses on available-for-sale securities

(37)

(37)

Stock compensation expense

1,034

1,034

Stock option exercises and restricted stock unit settlements

65,470

(1,895)

2,439

544

Common stock repurchases

 

(92,656)

(3,681)

(3,681)

Cash dividends

(3,357)

(3,357)

Balances, April 30, 2023

13,414,404

$

2,374

$

161,347

$

206,584

$

(89,883)

$

(2,473)

$

277,949

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)

    

Three Months Ended April 30, 

    

2024

    

2023

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

7,882

$

2,109

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

Changes in accrued interest on investments

3,544

1,081

Stock compensation expense

1,211

1,034

Lease expense

 

647

 

439

Depreciation

480

547

Deferred income tax expense

263

147

Amortization of intangible assets

 

97

 

98

Other

 

(38)

 

57

Changes in operating assets and liabilities

Accounts receivable

 

(12,636)

 

(10,642)

Contract assets

(6,196)

19,864

Other assets

 

(4,422)

 

(4,089)

Accounts payable and accrued expenses

 

7,479

 

(26,940)

Contract liabilities

19,375

15,047

Net cash provided by (used in) operating activities

 

17,686

 

(1,248)

CASH FLOWS FROM INVESTING ACTIVITIES

Purchases of short-term investments

(57,500)

(90,000)

Maturities of short-term investments

80,000

149,750

Purchases of available-for-sale securities

(29,824)

(30,355)

Maturities of available-for-sale securities

9,230

Purchases of property, plant and equipment

 

(322)

 

(645)

Investments in solar energy projects

 

(3,312)

 

Net cash (used in) provided by investing activities

 

(1,728)

 

28,750

CASH FLOWS FROM FINANCING ACTIVITIES

Common stock repurchases

(187)

(3,681)

Payments of cash dividends

 

(4,025)

 

(3,357)

Proceeds from share-based award settlements, net of withholding taxes paid

 

(906)

 

544

Net cash used in financing activities

 

(5,118)

 

(6,494)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

(134)

992

NET INCREASE IN CASH AND CASH EQUIVALENTS

 

10,706

 

22,000

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

197,032

173,947

CASH AND CASH EQUIVALENTS, END OF PERIOD

$

207,738

$

195,947

NON-CASH INVESTING AND FINANCING ACTIVITIES

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

$

542

$

293

SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for income taxes, net of refunds

$

3,312

$

513

Cash paid for operating leases

$

651

$

444

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

 

5

ARGAN, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

APRIL 30, 2024

(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 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 and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation. In Note 15, 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 April 30, 2024, the condensed consolidated statements of earnings and stockholders’ equity for the three months ended April 30, 2024 and 2023, and the condensed consolidated statements of cash flows for the three months ended April 30, 2024 and 2023 are unaudited. The condensed consolidated balance sheet as of January 31, 2024 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, 2024 (“Fiscal 2024”).

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 April 30, 2024, 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 November 2023, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“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 ASU 2023-07 may have on its financial position, results of operations, cash flows, or disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which introduces more detailed requirements for annual disclosures for income taxes. The ASU requires public business entities to present specific categories in the income tax rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose the amount of income taxes paid, net of refunds received, disaggregated by federal, state, and foreign jurisdiction. The ASU is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the effects, if any, that the adoption of ASU 2023-09 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.

NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS

Disaggregation of Revenues

The following table presents consolidated revenues for the three months ended April 30, 2024 and 2023, disaggregated by the geographic area where the corresponding projects were located:

Three Months Ended April 30, 

2024

    

2023

United States

$

124,331

$

65,244

Republic of Ireland

 

28,891

 

24,856

United Kingdom

 

4,460

 

13,575

Consolidated Revenues

$

157,682

$

103,675

Revenues for projects located in Ireland and the U.K. are attributed to the power industry services segment. 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 15 to the condensed consolidated financial statements.

Contract Termination

For a project being performed by APC to construct a gas-fired power facility in Northern Ireland (the “Kilroot Project”), an estimated loss for the project of approximately $12.7 million has been recognized, of which $2.6 million was recorded during the three-month period ended April 30, 2024 and the remainder recorded in the prior fiscal year. On May 3, 2024, the project owner revoked the passes of the project and construction teams of APC to the construction site. APC had delivered a notice of contract breach with a 14-day resolution period. The issues were not resolved and APC terminated the contract (see Note 7). APC has significant unresolved contract variations and claims for extensions of time, among others, related to the Kilroot Project. The project owner has asserted counterclaims that the Company disputes. APC will continue to pursue all of its rights under the contract, and will do so through legal means if necessary.

Contract Assets and Liabilities

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. This results in typically larger contract liability balances early in contract lives that decline over the terms of the corresponding contracts. During the three months ended April 30, 2024 and 2023, there were no

7

unusual or one-time adjustments to contract liabilities. The amounts of revenues recognized during the three months ended April 30, 2024 and 2023, that were included in the balances of contract liabilities as of January 31, 2024 and 2023, were approximately $66.5 million and $50.9 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. The amounts retained by project owners and other customers under construction contracts at April 30, 2024 and January 31, 2024 were $24.8 million and $21.2 million, respectively.

Variable Consideration

Variable consideration includes 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, that 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 Company also includes in the corresponding transaction price an estimate of the amount that it expects to receive from claims based on management’s judgment regarding all reasonably available information. At April 30, 2024 and January 31, 2024, the aggregate amounts of such contract variations, that primarily related to the Kilroot Project, and that were included in the corresponding transaction prices pending customer approvals, were $9.4 million and $8.4 million, respectively.

Remaining Unsatisfied Performance Obligations (“RUPO”)

At April 30, 2024, the Company had RUPO of $0.8 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 67% of the RUPO amount at April 30, 2024 will be included in the amount of consolidated revenues that will be recognized during the remainder of the fiscal year ending January 31, 2025 (“Fiscal 2025”). Most of the remaining amount of the RUPO amount at April 30, 2024 is expected to be recognized in revenues during the fiscal years ending January 31, 2026 and January 31, 2027.

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 April 30, 2024. Accordingly, RUPO may be adjusted to reflect project delays and cancellations, revisions to project scope and cost and foreign currency exchange fluctuations, or to revise estimates, as effects become known. Such adjustments to RUPO may materially reduce future revenues below Company estimates.

NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS

At April 30, 2024 and January 31, 2024, 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 such obligations. Dividend income related to money market investments is recorded when earned. The balances of accrued dividends at April 30, 2024 and January 31, 2024 were $0.6 million and $0.7 million, respectively.

Investments

The Company’s investments consisted of the following as of April 30, 2024 and January 31, 2024:

8

    

April 30, 

January 31, 

2024

    

2024

Short-term investments

$

84,029

$

109,489

Available-for-sale securities

124,589

105,884

Total investments

$

208,618

$

215,373

Short-Term Investments

Short-term investments as of April 30, 2024 and January 31, 2024 consisted solely of certificates of deposit (“CDs”) with initial 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. The balances of accrued interest on the CDs at April 30, 2024 and January 31, 2024 were $1.5 million and $4.5 million, respectively. Interest income is recorded when earned and is included in other income. At April 30, 2024 and January 31, 2024, the weighted average annual interest rates of the outstanding CDs were 5.5% and 5.4%, respectively.

Available-For-Sale Securities

The Company’s available-for-sale (“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 April 30, 2024 and January 31, 2024:

April 30, 2024

Allowance for

Gross

Gross

Estimated

Amortized

Credit

Unrealized

Unrealized

Fair

    

Cost

    

Losses

    

Gains

    

Losses

    

Value

U.S. Treasury notes:

Due within one year

$

15,032

$

$

$

167

$

14,865

Due in one to two years

50,557

456

50,101

Due in two to three years

50,004

405

49,599

U.S. corporate debt security:

Due in two to three years

10,046

22

10,024

Totals

$

125,639

$

$

$

1,050

$

124,589

January 31, 2024

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

$

50,634

$

$

305

$

102

$

50,837

Due in two to three years

45,583

263

128

45,718

U.S. corporate debt security:

Due in two to three years

9,406

77

9,329

Totals

$

105,623

$

$

568

$

307

$

105,884

As of April 30, 2024 and January 31, 2024, interest receivable in the amounts of $0.8 million and $1.3 million, respectively, were included in the balances of AFS securities. For the three months ended April 30, 2024, the change in net unrealized holding losses, net of tax, for the Company’s AFS securities reported in other comprehensive income was approximately $1.0 million. For the three months ended April 30, 2023, the change in net unrealized holding losses, net of tax, for the Company’s AFS securities reported in other comprehensive income was not material.

For the three months ended April 30, 2024 and 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 April 30, 2024, which includes an assessment of whether it is more likely than not the Company will be required to sell or intends to sell the investments before recovery of their corresponding amortized cost bases.

9

Earnings on Invested Funds

Earnings on invested funds for the three months ended April 30, 2024 and 2023 were $4.5 million and $2.4 million, respectively, and are included in other income, net, in the consolidated statements of earnings.

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 April 30, 2024, approximately 2% 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 – FAIR VALUE MEASUREMENTS

The following table presents the Company’s financial instruments as of April 30, 2024 and January 31, 2024 that are measured and recorded at fair value on a recurring basis:

April 30, 2024

January 31, 2024

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

    

Inputs

    

Inputs

Inputs

    

Inputs

Inputs

    

Inputs

Cash equivalents:

Money market fund

$

144,895

$

$

$

126,646

$

$

Available-for-sale securities:

U.S. Treasury notes

114,565

96,555

U.S. corporate debt security

10,024

9,329

Totals

$

144,895

$

124,589

$

$

126,646

$

105,884

$

NOTE 5 – 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 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 months ended April 30, 2024 and 2023 were insignificant. The allowance for credit losses at April 30, 2024 and January 31, 2024 was $1.8 million.

NOTE 6 – INTANGIBLE ASSETS

At both April 30, 2024 and January 31, 2024, 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, 2024, that required an updated assessment of the goodwill balances of either the GPS or TRC reporting units.

The Company’s intangible assets, other than goodwill, relate primarily to the industrial construction services segment and consisted of the following as of April 30, 2024 and January 31, 2024:

April 30, 2024

January 31, 2024

Estimated

Gross

Accumulated

Net

Gross

Accumulated

Net

    

Useful Life

    

Amounts

    

Amortization

    

Amounts

    

Amounts

    

Amortization

    

Amounts

Trade name

15 years

$

4,499

$

2,524

$

1,975

$

4,499

$

2,450

$

2,049

Customer relationships

10 years

916

771

145

916

748

168

Totals

$

5,415

$

3,295

$

2,120

$

5,415

$

3,198

$

2,217

10

The following is a schedule of future amounts of amortization related to purchased intangibles:

    

Amortization

Years ending January 31,

Expense

2025 (remainder)

    

$

294

2026

 

376

2027

 

300

2028

 

300

2029

300

Thereafter

 

550

Total

$

2,120

NOTE 7 – FINANCING ARRANGEMENTS

On May 24, 2024, the Company and the Bank executed the Second Amended and Restated Replacement Credit Agreement with an expiration date May 31, 2027 (the “New Credit Agreement”). The New Credit Agreement supersedes the now expired credit agreement, as amended, that was executed on May 15, 2017 with an expiration date of May 31, 2024 (the “Expired Credit Agreement”), reduces the base lending commitment amount from $50.0 million to $35.0 million, increases the letter of credit fees to be consistent with current market conditions, and establishes the interest rate for revolving loans at the Secured Overnight Financing Rate (“SOFR”) plus 1.85%. In addition to the base commitment, the new facility includes an accordion feature that allows for an additional commitment amount of $30.0 million, subject to certain conditions, that represents an increase from the $10.0 million accordion provided by the Expired Credit Agreement. The Company may use the borrowing ability to cover other credit instruments issued by the Bank for the Company’s use in the ordinary course of business as defined in the New Credit Agreement. Further, on May 31, 2024, the Company completed the negotiation of a companion facility, in the amount of $25.0 million, pursuant to which the Company’s Irish subsidiary, Atlantic Projects Company Limited (“APCL”), may cause the Bank’s European entity to issue letters of credit on its behalf that will be secured by a blanket parent company guarantee issued by Argan to the Bank.

At April 30, 2024 and January 31, 2024, the Company did not have any borrowings outstanding under the Expired Credit Agreement. However, the Bank had issued a letter of credit, in support of the activities of APC for the Kilroot Project, that was outstanding in the total amount of $9.2 million as of April 30, 2024. Subsequent to April 30, 2024, the project owner made a draw for the full amount of the irrevocable letter of credit that is subject to the open and disputed contract variations and claims related to this project.

The Company has pledged the majority of its assets to secure its financing arrangements. The Bank’s consent is not required for acquisitions, divestitures, cash dividends or significant investments as long as certain conditions are met. The New Credit Agreement requires that the Company comply with certain financial covenants at its fiscal year-end and at each fiscal quarter-end. The New Credit Agreement includes other terms, covenants and events of default that are customary for a credit facility of its size and nature, including a requirement to achieve positive adjusted earnings before interest, taxes, depreciation and amortization, as defined, over each rolling twelve-month measurement period. As of April 30, 2024, the Company was in compliance with the covenants and other requirements of the New Credit Agreement that are similar to those that were included in the Expired Credit Agreement.

NOTE 8 – COMMITMENTS

Performance Bonds and Guarantees

In the normal course of business and for certain major projects, the Company may be required to obtain surety or performance bonding, to cause the issuance of letters of credit, or to provide parent company guarantees (or some combination thereof) in order to provide performance assurances to clients on behalf of its contractor subsidiaries. As these subsidiaries are wholly-owned, any actual liability is ordinarily reflected in the financial statement account balances determined pursuant to the Company’s accounting for contracts with customers. When sufficient information about claims on guaranteed or bonded projects would become available and monetary damages or other costs or losses are determined to be probable, the Company would record such losses.

As of April 30, 2024, the estimated amounts of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, was approximately $0.4 billion. As of April 30, 2024, the outstanding amount of bonds covering other

11

risks, including warranty obligations related to completed activities, was not material. Not all of our projects require bonding.

The Company also provided a financial guarantee, subject to certain terms and conditions, up to the amount of $3.6 million in support of business development efforts. An estimated loss related to this guarantee was recorded during the year ended January 31, 2022 (“Fiscal 2022”).

Warranties

The Company generally provides assurance-type warranties for work performed under its construction contracts. The warranties cover defects in equipment, materials, design or workmanship, and most warranty periods typically run from nine to twenty-four months after the completion of construction on a particular project. Because of the nature of the Company’s projects, including project owner inspections of the work both during construction and prior to substantial completion, the Company has not experienced material unexpected warranty costs in the past. Warranty costs are estimated based on experience with the type of work and any known risks relative to each completed project. The accruals of liabilities, which are established to cover estimated future warranty costs, are recorded as the contracted work is performed, and they are included in the amounts of accrued expenses in the condensed consolidated balances sheets. The liability amounts may be periodically adjusted to reflect changes in the estimated size and number of expected warranty claims.

NOTE 9 – LEGAL CONTINGENCIES

In the normal course of business, the Company may have pending claims and legal proceedings. In the opinion of management, based on information available at this time, there were no current claims and proceedings that were expected to have a material adverse effect on the condensed consolidated financial statements as of April 30, 2024.

NOTE 10 – STOCK-BASED COMPENSATION

On June 23, 2020, the Company’s stockholders approved the adoption of the 2020 Stock Plan (the “2020 Plan”). The 2020 Plan replaced the 2011 Stock Plan (the “2011 Plan”); the Company’s authority to make awards pursuant to the 2011 Plan expired on July 19, 2021. Together, the 2020 Plan and the 2011 Plan are hereinafter referred to as the “Stock Plans.” As of April 30, 2024, there were 1,920,114 shares of common stock reserved for issuance under the Stock Plans, which includes 483,679 shares of common stock available for future awards under the 2020 Plan.

Expense amounts related to stock awards were $1.2 million and $1.0 million for the three months ended April 30, 2024 and 2023, respectively. At April 30, 2024, there was $8.0 million in unrecognized compensation cost related to outstanding stock awards that the Company expects to expense over the next three years.

Stock Options

A summary of stock option activity under the Stock Plans for the three months ended April 30, 2024 is presented below (shares in thousands):

Weighted-

Weighted-

Weighted-

Average

Average

Average Exercise

Remaining

Grant-Date

Price

Contractual

Fair Value

    

Shares

    

Per Share

    

Term (years)

    

Per Share

Outstanding, February 1, 2024

 

1,365

$

44.95

 

4.67

$

10.43

Granted

6

$

61.22

Exercised

(249)

$

41.58

Forfeited

(4)

$

60.07

Outstanding, April 30, 2024

1,118

$

45.73

 

4.47

$

10.63

Exercisable, April 30, 2024

 

1,047

$

46.13

4.19

$

10.81

Vested or expected to vest, April 30, 2024

 

1,118

$

45.73

 

4.47

$

10.63

12

The changes in the number of non-vested options to purchase shares of common stock for the three months ended April 30, 2024 is presented below (shares in thousands):

    

Weighted-

Average

Grant-Date

Fair Value

Shares

    

Per Share

Non-vested, February 1, 2024

 

92

$

7.85

Granted

 

6

$

13.89

Vested

 

(27)

$

8.63

Non-vested, April 30, 2024

 

71

$

8.06

The total intrinsic value amounts related to the stock options exercised during the three months ended April 30, 2024 and 2023 were $4.7 million and $0.7 million, respectively. At April 30, 2024, the aggregate market value amounts of the shares of common stock subject to outstanding stock options and exercisable stock options where the options were “in-the-money” exceeded the aggregate exercise prices of such options by $17.8 million and $16.4 million, respectively.

Restricted Stock Units

The Company awards total stock return performance-based restricted stock units (“PRSUs”), earnings per share performance-based restricted stock units (“EPRSUs”), renewable energy performance-based restricted stock units (“RRSUs”), and time-based restricted stock units (“TRSUs”) to senior executives, certain other key employees and members of the Company’s board of directors. Awardees earn the right to receive shares of common stock as certain performance goals are achieved and/or service periods are satisfied. Each restricted stock unit expires on the three-year anniversary of the award.

During the three months ended April 30, 2024, the Company awarded PRSUs covering a target of 5,000 shares of common stock, EPRSUs covering a target of 10,000 shares of common stock, RRSUs covering a target of 5,000 shares of common stock, TRSUs covering 37,750 shares of common stock, and 2,658 shares based on the amount of cash dividends deemed paid on shares earned pursuant to the awards. The number of shares of common stock to be issued under certain awards may exceed target shares if certain performance goals are met.

The changes in the maximum number of shares of common stock issuable pursuant to outstanding restricted stock units for the three months ended April 30, 2024, are presented below (shares in thousands):

    

    

Weighted-

Average

Grant-Date

Fair Value

Shares

Per Share

Outstanding, February 1, 2024

 

348

$

30.21

Awarded

 

75

$

41.49

Issued

(50)

$

42.17

Forfeited

(55)

$

24.49

Outstanding, April 30, 2024

 

318

$

31.99

13

NOTE 11 – INCOME TAXES

The Company’s income tax amounts for the three months ended April 30, 2024 and 2023 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21% to the income before income taxes for the periods as presented below:

    

Three Months Ended April 30, 

    

2024

    

2023

Computed expected income tax expense

$

2,376

$

631

Difference resulting from:

Unrecognized tax loss benefit

794

Foreign tax rate differential

(216)

(198)

State income taxes, net of federal tax effect

 

418

 

84

Other permanent differences and adjustments, net

59

378

Income tax expense

$

3,431

$

895

Net Operating Loss (“NOL”) Carryback

As a result of the tax changes enacted by the Coronavirus, Aid, Relief and Economic Security Act signed into law in March 2020 (the “CARES Act”), the Company made a filing during the year ended January 31, 2021 with the Internal Revenue Service (the “IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2016 (“Fiscal 2016”) and 2015 (“Fiscal 2015”) in the total amount of approximately $12.7 million. At the instruction of the IRS, the Company filed amended income tax returns for Fiscal 2016 and Fiscal 2015 during Fiscal 2024; the IRS has not completed the examination and approval process for the Company’s amended tax returns and refund request.

Research and Development Tax Credits

During the year ended January 31, 2023 (“Fiscal 2023”), the Company filed amended federal income tax returns for Fiscal 2022 and for the year ended January 31, 2021 (“Fiscal 2021”) that included research and development tax credits in the total amount of $5.8 million, which was netted with a provision for uncertain tax return positions in the amount of $2.4 million. In May 2023, the Company received notification that these amended federal income tax returns were selected for examination. At April 30, 2024, the examination was in its early stages of documentation requests and review.

Income Tax Refunds

As of April 30, 2024 and January 31, 2024, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds receivable and prepaid income taxes in the total amounts of approximately $18.2 million and $18.3 million, respectively. The income tax refunds included the amount expected to be received from the IRS upon its examination and approval of the Company’s NOL carryback refund request and the completion of its examination of the amended tax returns for Fiscal 2022 and Fiscal 2021 as described above.

Income Tax Returns

The Company is subject to federal and state income taxes in the U.S., and income taxes in Ireland and the U.K. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant judgments to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before January 31, 2020, except for several notable exceptions including Ireland, the U.K. and several states where the open periods are one year longer.

Solar Energy Projects

The Company holds equity investments in Solar Tax Credit (“STC”) investments. Primarily, the STC investments are structured as limited liability companies that invest in solar energy projects that are eligible to receive energy tax credits. During the three months ended April 30, 2024, the Company made investments of approximately $3.3 million in STC investments that were committed as of January 31, 2024. As of April 30, 2024, the Company had no remaining cash investment commitments related to its STC investments.

14

At April 30, 2024 and January 31, 2024, the investment accounts balances were $1.4 million and $2.1 million, respectively, which are included in other assets in the condensed consolidated balance sheets.

The Company has elected to use the proportional amortization method (“PAM”) for STC investments that qualify. Under PAM, an investment is amortized in proportion to the allocation of tax benefits received in each period, and the investment amortization and tax benefit amounts are presented net within income tax expense in the Company’s condensed consolidated statement of earnings. For the three months ended April 30, 2024, the Company recorded $0.7 million of investment amortization related to the STC investment that qualifies for PAM. The amount of non-income tax-related activity and other returns related to this investment was not material for the three months ended April 30, 2024. During the three months ended April 30, 2023, the Company did not have any STC investments that qualified for PAM.

For the Company’s STC investments that do not qualify for PAM, the Company accounts for the investments using the equity method of accounting and includes income and losses related to the investment in other income in the Company’s condensed consolidated statements of earnings. For the three months ended April 30, 2024 and 2023, the Company recorded its share of losses of less than $0.1 million and $0.1 million, respectively, from these STC investments.

NOTE 12 – NET INCOME PER SHARE

Basic and diluted net income per share amounts are computed as follows (shares in thousands except in the notes):

Three Months Ended April 30, 

    

2024

    

2023

Net income

$

7,882

$

2,109

Weighted average number of shares outstanding – basic

13,257

13,413

Effect of stock awards (1)

315

133

Weighted average number of shares outstanding – diluted

13,572

13,546

Net income per share

Basic

$

0.59

$

0.16

Diluted

$

0.58

$

0.16

(1)For the three months ended April 30, 2024 and 2023, the weighted average numbers of shares determined on a dilutive basis exclude the effects of antidilutive stock options and restricted stock units covering an aggregate of 344,000 and 851,834 shares of common stock, respectively.

NOTE 13 – CASH DIVIDENDS AND COMMON STOCK REPURCHASES

During the three months ended April 30, 2024, the Company’s board of directors declared and the Company paid a regular quarterly cash dividend in the amount of $0.30 per share of common stock. During the three months ended April 30, 2023, the Company paid a regular quarterly dividend of $0.25 per share of common stock.

Pursuant to its established program and authorizations provided by Argan’s board of directors, the Company repurchased shares of its common stock during the three months ended April 30, 2024 and 2023 and added the shares to treasury stock. During these periods, the Company repurchased 5,600 shares and 92,656 shares of common stock, all on the open market, for aggregate prices of approximately $0.3 million, or $44.87 per share, and $3.7 million, or $39.61 per share, respectively.

For the three months ended April 30, 2024, the Company accepted 185,354 shares of common stock at the average price per share of $60.64 for the exercise price and/or tax withholding in connection with stock option exercises and other share-based award settlements. For the three months ended April 30, 2023, the Company did not accept any shares of common stock for such transactions. For the three months ended April 30, 2024 and 2023, the Company used 113,260 shares and 65,470 shares of treasury stock, respectively, to settle stock option exercises and other share-based awards.

15

NOTE 14 – CUSTOMER CONCENTRATIONS

The majority of the Company’s consolidated revenues relate to performance by the power industry services segment which provided 70% and 68% of consolidated revenues for the three months ended April 30, 2024 and 2023, respectively. The industrial construction services segment represented 28% and 29% of consolidated revenues for the three months ended April 30, 2024 and 2023, respectively.

The Company’s most significant customer relationships for the three months ended April 30, 2024 included two power industry services customers, which accounted for 28% and 11% of consolidated revenues. The Company’s most significant customer relationships for the three months ended April 30, 2023 included four power industry services customers, which accounted for 16%, 14%, 14% and 13% of consolidated revenues. 

The accounts receivable balances from three major customers represented 25%, 22% and 12% of the corresponding consolidated balance as of April 30, 2024. Accounts receivable balances from three major customers represented 16%, 14% and 14% of the corresponding consolidated balance as of January 31, 2024.

The contract asset balances associated with two major customers represented 33% and 28% of the corresponding consolidated balance as of April 30, 2024. The contract asset balances associated with two major customers represented 39% and 32% of the corresponding consolidated balance as of January 31, 2024.

NOTE 15 – SEGMENT REPORTING

Segments represent components of an enterprise for which discrete financial information is available that is evaluated regularly by the Company’s chief executive officer, who is the CODM, in determining how to allocate resources and in assessing performance. The Company’s reportable segments recognize revenues and incur expenses, are organized in separate business units with different management teams, customers, talents and services, and may include more than one operating segment.

Intersegment revenues and the related cost of revenues are netted against the corresponding amounts of the segment receiving the intersegment services. For the three months ended April 30, 2024 and 2023, intersegment revenues were not material.

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Summarized below are certain operating results and financial position data of the Company’s reportable business segments for the three months ended April 30, 2024 and 2023. The “Other” column in each summary includes the Company’s corporate expenses.

Three Months Ended

Power

Industrial

Telecom

April 30, 2024

    

Services

    

Services

    

Services

    

Other

    

Totals

Revenues

$

110,266

$

43,699

$

3,717

$

$

157,682

Cost of revenues

 

98,992

 

37,879

 

2,867

 

 

139,738

Gross profit

 

11,274

 

5,820