September 5, 2018 - 4:15 PM EDT
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Argan, Inc. Reports Second Quarter Results

ROCKVILLE, Md.

Argan, Inc. (NYSE: AGX) (“Argan” or the “Company”) today announced financial results for its second quarter ended July 31, 2018. For additional information, please read the Company’s Quarterly Report on Form 10-Q, which the Company intends to file today with the U.S. Securities and Exchange Commission (the “SEC”). The Quarterly Report can be retrieved from the SEC’s website at www.sec.gov or from the Company's website at www.arganinc.com.

Summary Information: (dollars in thousands, except per share data (unaudited)):

       

July 31,

2018

 

2017

Change

% Change

For the Quarter Ended:
Revenues $ 136,670 $ 259,803 $ (123,133 ) (47 )%
Gross profit 30,708 51,407 (20,699 ) (40 )
Gross margins 22.5 % 19.8 % 2.7

%

14
Net income attributable to the stockholders of the Company $ 16,972 $ 27,139 $ (10,167 ) (38 )
Diluted per share 1.08 1.72 (0.64 ) (37 )
EBITDA attributable to the stockholders of the Company 24,445 42,712 (18,267 ) (43 )
Diluted per share 1.56 2.71 (1.15 ) (42 )
 
For the Six Months Ended:
Revenues $ 278,036 $ 490,292 $ (212,256 ) (43

)%

Gross profit 46,160 91,503 (45,343 ) (50 )
Gross margins 16.6 % 18.7 % (2.1 )% (11 )
Net income attributable to the stockholders of the Company $ 21,809 $ 47,764 $ (25,955 ) (54 )
Diluted per share 1.39 3.03 (1.64 ) (54 )
EBITDA attributable to the stockholders of the Company 32,592 75,168 (42,576 ) (57 )
Diluted per share 2.08 4.76 (2.68 ) (56 )
 
As of:

July 31,
2018

January 31,
2018

Change

% Change

Cash, cash equivalents and short-term investments $ 361,742 $ 434,015 $ (72,273 ) (17

)%

Net liquidity (1) 313,371 301,817 11,554 4
Project Backlog 429,000 379,000 50,000 13

(1) We define net liquidity, or working capital, as our total current assets less our total current liabilities.

 

Second Quarter Results:

As successful execution by Gemma Power Systems (“GPS”) on four large gas-fired power plant projects are reaching the final stages, revenues saw a decline during the current quarter to $136.7 million compared to $259.8 million in the prior year quarter. Construction activities for these projects have matured from peak levels to the commissioning and start up phases. The decline in revenues at GPS was partially offset by record revenues at Atlantic Projects Company (“APC”) and The Roberts Company (“TRC”) during the second quarter. Gross profits decreased by 40% to $30.7 million from $51.4 million for the prior year, reflecting primarily the reduction in consolidated revenues between periods. Our gross margin percentage increased to 22.5% from 19.8% for the prior year quarter, reflecting execution on the commissioning and start-up phases of four natural gas-fired power plant projects which have all recently reached substantial completion.

The levels of selling, general and administrative expenses were consistent between the two quarters. Other income increased $1.6 million compared to the prior year quarter primarily reflecting a recorded gain on the settlement in the current quarter of a previously disclosed dispute. The Tax Cuts and Jobs Act had a favorable impact on our tax rate, resulting in an estimated annual effective income tax rate of 27.5% for the current quarter, compared to an income tax rate of 36.2% for the second quarter last year.

These factors resulted in net income attributable to our stockholders decreasing 38% to $17.0 million for the current quarter, or $1.08 per diluted share, from $27.1 million, or $1.72 per diluted share, for the prior year quarter. EBITDA attributable to our stockholders for three months ended July 31, 2018, decreased 43% to $24.4 million, or $1.56 per diluted share, from $42.7 million, or $2.71 per diluted share, for the prior year quarter. We paid our second regular quarterly cash dividend of $0.25 per share in July.

Our balance sheet continues to be strong. As of July 31, 2018, our cash, cash equivalents and short-term investments totaled $362 million and net liquidity was $313 million; plus, we had no bank debt. Our project backlog was $429 million as of July 31, 2018, up from $379 million at the end of the prior year, mostly due to an EPC contract entered into by GPS during the first quarter. During the second quarter, we announced that GPS has also entered into an EPC contract to construct the Chickahominy Power Station, a 1,600 MW natural gas-fired power plant, in Virginia. We do not intend to include the value of this EPC contract in project backlog until the project progresses closer to its anticipated start date in early 2019. As previously reported, we remain encouraged about our project pipeline as GPS has been selected to perform the EPC work for several new power generation facilities with a collective potential project value over $1.5 billion, including the Chickahominy Power Station, and projected start dates ranging from later in 2018 through 2019.

Six Month Results:

For the six months ended July 31, 2018, consolidated revenues decreased 43% to $278.0 million compared to the prior year period, due to the same reasons discussed above. Gross profit decreased 50% to $46.2 million reflecting primarily the reduction in consolidated revenues between periods. Our gross margin percentage decreased to 16.6% from 18.7% for the prior year period, reflecting strong peak construction performance on the four natural gas-fired power plant projects in the prior year period.

The amounts of selling, general and administrative expenses for the periods were consistent. For the same reasons discussed above, other income increased and taxes decreased between the two periods. These factors resulted in net income attributable to our stockholders for the six months ended July 31, 2018 decreasing 54% to $21.8 million, or $1.39 per diluted share, compared to $47.8 million, or $3.03 per diluted share, for the prior year period. EBITDA attributable to the stockholders for the six months ended July 31, 2018 decreased 57% to $32.6 million, or $2.08 per diluted share, from $75.2 million, or $4.76 per diluted share, for the prior year period.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief Executive Officer, stated, “We experienced a meaningful rebound in our margins and bottom line compared to the last several quarters resulting from record performance at APC and TRC and the recent achievement of substantial completion on four key power plant projects. These gas-fired power plants can provide dependable and efficient power 24 hours a day to over two million homes and remain a viable and large part of our nation’s dynamic power supply. We continue to position our Company as an accomplished builder of these complex gas-fired power plants and, as we recently reported, we signed another EPC contract to build a large gas-fired power plant. As we have indicated previously, we are focused on identifying opportunities, rebuilding our backlog and remain cautiously optimistic that we will add several more projects to backlog this year and in calendar 2019. Nonetheless, this transition will result in a decrease to our revenues in the coming quarters until work on new projects is secured and ramps up in accordance with the normal construction cycle of large EPC projects.”

About Argan, Inc.

Argan’s primary business is providing a full range of services to the power industry, including the engineering, procurement and construction of natural gas-fired power plants, along with related commissioning, operations management, maintenance, project development and consulting services, through its Gemma Power Systems and Atlantic Projects Company operations. Argan also owns SMC Infrastructure Solutions, which provides telecommunications infrastructure services, and The Roberts Company, which is a fully integrated fabrication, construction and industrial plant services company.

Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws and are subject to risks and uncertainties including but not limited to: (1) the continued strong operational performance of our power industry services business; (2) the Company’s successful addition of new contracts to backlog and the Company’s receipt of notices to proceed with the corresponding contract activities; and (3) the Company’s ability to execute on its business strategy while effectively managing costs and expenses. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors described from time to time in Argan’s filings with the SEC. In addition, reference is hereby made to the cautionary statements made by us with respect to risk factors set forth in the Company’s most recent reports on Form 10-K and 10-Q, and other SEC filings.

     
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
 
Three Months Ended July 31, Six Months Ended July 31,
2018   2017 2018   2017
 
REVENUES $ 136,670 $ 259,803 $ 278,036 $ 490,292
Cost of revenues   105,962     208,396   231,876     398,789
GROSS PROFIT 30,708 51,407 46,160 91,503
Selling, general and administrative expenses   10,378     10,799   20,015     20,289
INCOME FROM OPERATIONS 20,330 40,608 26,145 71,214
Other income, net   2,928     1,311   3,692     2,529
INCOME BEFORE INCOME TAXES 23,258 41,919 29,837 73,743
Income tax expense   6,314     14,601   8,051     25,676
NET INCOME 16,944 27,318 21,786 48,067
Net (loss) income attributable to non-controlling interests   (28 )   179   (23 )   303

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

16,972 27,139 21,809 47,764
 
Foreign currency translation adjustments   (693 )   789   (1,272 )   893

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

$

16,279

  $ 27,928

$

20,537

  $ 48,657
 

EARNINGS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

Basic $ 1.09   $ 1.75

$

1.40

  $ 3.08
Diluted $ 1.08   $ 1.72 $ 1.39   $ 3.03
 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic   15,568     15,514   15,568     15,491
Diluted   15,673     15,787   15,673     15,788
 
CASH DIVIDENDS PER SHARE $ 0.25   $ $ 0.50   $
 
   
ARGAN, INC. AND SUBSIDIARIES
Reconciliations to EBITDA
(In thousands) (Unaudited)
 
Three Months Ended July 31,
2018   2017
Net income $ 16,944 $ 27,318
Less EBITDA attributable to noncontrolling interests 28 (179 )
Interest expense 110
Income tax expense 6,314 14,601
Depreciation 796 638
Amortization of purchased intangible assets   253   334  
EBITDA attributable to the stockholders of the Company $ 24,445 $ 42,712  
 
Six Months Ended July 31,
2018 2017
Net income $ 21,786 $ 48,067
Less EBITDA attributable to noncontrolling interests 23 (303 )
Interest expense 659
Income tax expense 8,051 25,676
Depreciation 1,567 1,210
Amortization of purchased intangible assets   506   518  
EBITDA attributable to the stockholders of the Company $ 32,592 $ 75,168  
  Management uses EBITDA, a non-GAAP financial measure, for planning purposes, including the preparation of operating budgets and the determination of appropriate levels of operating and capital investments. Management believes that EBITDA provides additional insight for analysts and investors in evaluating the Company’s financial and operational performance and in assisting investors in comparing the Company’s financial performance to those of other companies in the Company’s industry. However, EBITDA is not intended to be an alternative to financial measures prepared in accordance with GAAP and should not be considered in isolation from the Company’s GAAP results of operations. Consistent with the requirements of SEC Regulation G, reconciliations of the Company’s non-GAAP financial results from net income are included in the presentations above and investors are advised to carefully review and consider this information as well as the GAAP financial results that are presented in the Company’s SEC filings.
 
     
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
 
July 31, 2018 January 31, 2018
(Unaudited)
ASSETS
 
CURRENT ASSETS
Cash and cash equivalents $ 165,766 $ 122,107
Short-term investments 195,976 311,908
Accounts receivable, net 46,137 24,756
Contract assets 34,792 13,847
Prepaid expenses and other current assets   10,542   12,410
TOTAL CURRENT ASSETS 453,213 485,028
Property, plant and equipment, net 18,882 15,299
Goodwill 34,329 34,329
Other purchased intangible assets, net 6,643 7,149
Deferred taxes 342 439
Other assets   394   426
TOTAL ASSETS $ 513,803 $ 542,670

LIABILITIES AND EQUITY

 

CURRENT LIABILITIES

Accounts payable $ 84,239 $ 100,238
Accrued expenses 31,218 35,360
Contract liabilities   24,385   47,613
TOTAL CURRENT LIABILITIES 139,842 183,211
Deferred taxes   2,146   1,293
TOTAL LIABILITIES   141,988   184,504
 
COMMITMENTS AND CONTINGENCIES
 
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; 15,571,952 and 15,570,952 shares issued at July 31 and January 31, 2018, respectively; 15,568,719 and 15,567,719 shares outstanding at July 31 and January 31, 2018, respectively

2,336

2,336

Additional paid-in capital 144,135 143,215
Retained earnings 225,174 211,150
Accumulated other comprehensive income   150   1,422
TOTAL STOCKHOLDERS’ EQUITY 371,795 358,123
Non-controlling interests   20   43
TOTAL EQUITY   371,815   358,166
TOTAL LIABILITIES AND EQUITY $ 513,803 $ 542,670
 

Argan, Inc.
Company Contact:
Rainer Bosselmann, 301-315-0027
or
Investor Relations Contact:
David Watson, 301-315-0027


Source: Business Wire (September 5, 2018 - 4:15 PM EDT)

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