Argan, Inc. (NYSE:AGX) Q1 2024 Earnings Convention Name June 8, 2023 5:00 PM ET
John Nesbitt – IMS, Investor Relations
David Watson – President and Chief Govt Officer
Richard Deily – Senior Vice President, Chief Monetary Officer, Treasurer & Company Secretary
Convention Name Contributors
Rob Brown – Lake Road Capital Markets
Chris Moore – CJS Securities
Good night, girls and gents, and welcome to the Argan Inc. Convention Name for First Quarter Fiscal 2024 Ended April 30, 2023. This name is being recorded. All individuals have been positioned on a listen-only mode. Following administration’s remarks, the decision might be opened for questions. There’s a slide presentation that accompanies right this moment’s remarks, which might be accessed through the webcast.
At the moment, it’s my pleasure to show the ground over to your host for right this moment, John Nesbett of IMS, Investor Relations. Please go forward.
Thanks. Good night, and welcome to our convention name to debate Argan’s outcomes for the primary quarter of fiscal yr 2024 ended April 30, 2023. On the decision right this moment, now we have David Watson, Chief Govt Officer.
I am going to take a second to learn the Secure Harbor assertion. Statements made throughout this convention name and offered within the presentation which might be based mostly on historic info are forward-looking statements. Such statements embrace however will not be restricted to projections or statements of future objectives and targets relating to the corporate’s revenues and earnings.
These statements are topic to identified and unknown elements and dangers. The corporate’s precise outcomes, efficiency or achievements could differ materially from these expressed or implied by these forward-looking statements and by a number of the elements and dangers that might trigger or contribute to such materials variations have been described on this afternoon’s press launch and Argan’s submitting with the US Securities and Alternate Fee. These statements are based mostly on data and understandings that we imagine to be correct as of right this moment don’t undertake any responsibility to replace such forward-looking statements.
Earlier this afternoon, as not less than most of you recognize, the corporate issued a press launch asserting its first quarter monetary outcomes and filed its first quarter Kind 10-Q with the Securities and Alternate Fee.
Okay. I’ll now flip the decision over to David Watson, Chief Govt Officer of Argan. Go forward, David.
Thanks, John, and thanks everybody for becoming a member of right this moment. I am going to begin by reviewing a number of the highlights of our operations and monetary outcomes and actions for the primary quarter of fiscal 2024 ended April 30, 2023. Then we’ll open up the decision for a quick Q&A, and for that portion of the decision, I will be joined by Hank Deily, our Chief Monetary Officer.
Argan is a number one full service associate to the ability business, effectively positioned to proceed driving long-term progress as demand for various power sources continues to develop. The long-term macroenvironment continues to strengthen for us partly pushed by the refreshment and substitute of on-demand power-generating infrastructure as growing old vegetation and amenities are retired and in addition supported by federal laws such because the Inflation Discount Act.
Most just lately, there may be potential upside for us from the debt ceiling invoice, which was signed by President Biden on June third. The invoice consists of language addressing the streamlining of the present allowing course of for energy-generating amenities which might ease sure constraints on the ability business.
Backlog of over $0.8 billion as of April 30, 2023 is notable, provided that we didn’t add any main tasks throughout the quarter and our stability sheet stays sturdy with $317 million of money and liquid investments. Moreover, we stock no debt. In the course of the first quarter, we repurchased roughly 93,000 shares of our frequent inventory for a complete spend of roughly $3.7 million.
Reviewing our three reportable enterprise segments. The ability business companies represented 68% of our first quarter revenues. This phase is comprised of our Gemma Energy Methods and Atlantic Tasks Firm working items and focuses on the development of all varieties of energy amenities, together with environment friendly gas-fired energy vegetation, photo voltaic power fields, biomass amenities and wind farms.
The commercial Subject and Fabrication Providers, which is represented by The Roberts Firm had a powerful quarter and contributed 29% of our first quarter income. Roberts present options to largely industrial and manufacturing shoppers with a deal with agriculture, petrochemical, pulp and paper, water and energy industries as effectively different newer industries including to or increasing the variety of manufacturing amenities within the Southeast. The phase gives building and different subject companies like plant upkeep turnarounds, shutdowns and emergency mobilizations in addition to pipe and vessels fabrication.
Lastly, now we have our Telecommunications Infrastructure companies group. It is our smallest phase, which contributed 3% of our first quarter revenues. SMC Infrastructure Options is our working model on this phase, offering inside-the-premise wiring companies for federal authorities places and army installations requiring high-level safety clearance in addition to outdoors building companies for the utility and telecommunications sectors.
Argan brings a broad vary of building and mission administration capabilities, strongly positioning us because the business continues to transition from coal-fired energy vegetation to pure gasoline and renewable power vegetation. With the elevated exercise round growing extra environmentally pleasant energy assets, we’re targeted on leveraging our experience and repute as a confirmed and dependable building associate to extend our management place in our area.
Moreover, the brand new debt ceiling laws consists of reforms designed to streamline and speed up the allowing course of for energy-generating amenities. With these provisions included, our business ought to profit from constructive tailwinds. We’re positioned to learn from each the decline of coal-fired energy technology and the expansion of extra sustainable alternate options, the place I’ve proven you this slide earlier than and assume it is essential to reiterate the decline to-date and the anticipated future decline in coal-fired energy technology.
Carbon neutrality is a vital environmental purpose for the US and plenty of different nations. By 2050, the coal-fired energy technology within the US is anticipated to drop by an extra 70% to characterize solely 5% of internet electrical energy technology. We imagine this transition will create important potential tailwinds for our enterprise.
Because the business shifts to our new energy technology applied sciences, it is essential to notice that 81% of our present backlog of over $0.8 billion represents tasks that assist decrease carbon emissions, illustrating our management position within the transition to cleaner energy technology.
So now turning to our monetary efficiency. On slide 9, we current our consolidated revenue assertion for the primary quarter of fiscal 2024. First quarter 2024 revenues elevated 4% to $104 million. Our prime line progress within the quarter was largely pushed by our means to drive income from a number of the smaller tasks we’re concerned with, which augments our historically bigger tasks.
These smaller tasks not solely create stability in our income base, however are additionally driving incremental progress. Our means to fulfill further requests from contracted prospects permits them to be versatile and is a aggressive benefit after we are competing for contracts. Usually when revenues are lower than anticipated, it doesn’t imply misplaced revenues, it simply means these revenues have pushed out to the appropriate because of the variability in building tasks.
So we anticipate to see some variability in revenues acknowledged in addition to in gross margins as sure tasks get near completion and others are simply starting to ramp. Gross margins within the first quarter have been 13.7%, a decline as in comparison with 19.7% within the first quarter of fiscal 2023, primarily attributable to adjustments in our income combine.
As we have talked about beforehand, our margins can fluctuate quarter-to-quarter associated to the income combine, present mission danger profiles, business phrases and related margin expectations.
For instance, time and materials contracts are much less dangerous than mounted worth, and subsequently, generate a decrease margin profile which is suitable on a risk-adjusted foundation. Moreover, margins can also be impacted by the place we’re within the mission lifecycle. So regardless, margin efficiency stays a spotlight and historic energy right here at Argan.
Promoting, basic and administrative bills of $11 million have been in step with the prior-year comparable quarter. In the course of the quarter, we additionally had a one-time pre-tax cost of roughly $3.2 million or $0.24 per diluted share associated to a beforehand reported fraudulently induced wire transfers, which is mirrored within the different loss line merchandise.
Web revenue for first quarter 2024 was $2.1 million or $0.16 per diluted share in comparison with internet revenue of $7 million or $0.50 per diluted share within the first quarter of fiscal 2023. EBITDA, which is earnings earlier than curiosity, taxes, depreciation and amortization, for the primary quarter of fiscal 2024, was $4 million as in comparison with $11 million within the first quarter of fiscal 2023. The lower in internet revenue and EBITDA was primarily because of the change within the income combine for the primary quarter, the decrease gross margin within the fraud loss.
Our consolidated mission backlog of over $0.8 billion as of April 30, 2023, is in step with the place we stood at year-end fiscal ’23 and displays the strong pipeline of alternatives we’re seeing and the continuing momentum in our enterprise. Notably, our backlog is characterised by longer-term totally dedicated tasks in each the Energy and Industrial Providers segments.
On slide 11, we current sure main tasks at present included in our backlog, the Guernsey Energy Station, which is the most important single-phase gas-fired energy plant mission within the US has been an amazing mission for us. In actual fact, whereas there may be some work to be accomplished over the subsequent a number of months, I used to be simply there earlier this week for the ribbon-cutting ceremony celebrating the beginning of business operations. This extremely environment friendly state-of-the-art plant will present sufficient energy to over 1.4 million houses within the PGA area and helps reliability of the ability grid.
The Maple Hill Photo voltaic facility, which is a pleasant illustration of our capabilities within the renewable area can be nearing completion. So from each the Guernsey Energy Station and the Maple Hill Photo voltaic facility, we noticed decreased revenues within the first quarter of fiscal 2024 as in comparison with final yr when building actions on these tasks have been in full swing.
Gemma’s new important mission, the Trumbull Vitality Heart is within the early phases of building, contributed elevated revenues and is anticipated to proceed to ramp-up over the course of the yr.
The Kilroot Energy Station and the ESB FlexGen Peaker Energy Crops are tasks which might be at or close to peak exercise. As I discussed earlier, we’re additionally performing sure duties associated to a number of undisclosed tasks in each the standard gas-fired and the renewable areas and we look ahead to offering extra particulars on these tasks after we obtain full notices to proceed with them.
Moreover, Roberts Firm has been awarded two distinct water remedy plant tasks rising the energy and variety of our backlog. With our visibility right this moment, we imagine that as we transfer by fiscal 2024, our portfolio of tasks will present a strong base for future progress and our consolidated revenues.
Our stability sheet remained sturdy. As of April 30, 2023, money, money equivalents, short-term investments and accessible on the market securities totaled $317 million and internet liquidity was $233 million with no debt.
Stockholders’ fairness was $278 million at April 30, 2023. As you may see from this liquidity bridge, our enterprise mannequin ordinarily requires a really low stage of capital expenditures. Our internet liquidity was in step with year-end and stays a sturdy $232.6 million as of April 30, 2023.
Since November 2021, now we have returned a complete of roughly $92 million to shareholders as we have repurchased roughly 2.5 million shares of our frequent inventory or roughly 15% of shares excellent at first of this system which equates to a median worth of $37.27 per share. Moreover, we have frequently paid a quarterly money dividend of $0.25 per share since fiscal 2019.
Argan has at all times been very targeted on long-term worth creation for shareholders. As everyone knows, quarterly working outcomes will at instances be a bit lumpy because of the timing of contracts and we stay targeted on delivering long-term worth to shareholders. Since 2008, now we have grown our tangible guide worth and cumulative dividends per share significantly.
Fiscal 2024 is off to a strong begin with mission backlog sustaining at over $0.8 billion. Our mission pipeline is strong and various contributing to our means to drive consistency in our income efficiency as sure tasks end up and new tasks ramp up.
Our margin efficiency moderated barely within the quarter, primarily associated to income combine. Our margin profile stays a spotlight and has demonstrated historic energy. We’re energized by the alternatives we’re seeing because the worldwide demand for power and grid stability will increase, Argan has constructed a powerful repute as a dependable associate for building and mission administration in addition to know-how companies and we look ahead to persevering with to capitalize on the alternatives we’re seeing to help our prospects as they transition and improve to fulfill the calls for of the evolving power panorama.
To shut, we stay targeted on our long-term progress technique, leverage our core competencies to capitalize on current and rising market alternatives, preserve disciplined danger administration with the purpose of enhancing our mission administration effectiveness and minimizing expensive mission overruns, strengthen our place as a associate of selection within the building of latest low and internet zero mission energy technology amenities because the business transitions to cleaner power alternate options whereas sustaining grid reliability, and lastly, to drive natural progress whereas additionally being conscious of acquisition alternatives that make sense for our enterprise by considerate capital allocation.
I wish to thank our shareholders for his or her continued assist and our staff for his or her dedication and laborious work in constructing Argan to our place as a valued energy business associate.
With that, operator, let’s open it up for questions.
At the moment, we might be conducting a question-and-answer session. [Operator Instructions] The primary query comes from Rob Brown with Lake Road Capital. Please proceed.
Good afternoon, Rob.
I simply needed to dig a bit bit extra into the pipeline of latest tasks that you’ve got talked about and are engaged on. How is that growing, has the kind of a number of the stuff with the IRA and different issues available in the market and kind of enhancing that or how do you kind of see that pipeline transferring alongside at this level?
Yeah, we’re enthusiastic about our pipeline and our backlog. We do anticipate so as to add some new giant tasks throughout the present yr and into subsequent based mostly on our present visibility into our pipeline. We might even see a discount in our reported backlog over the subsequent quarter or two as we convert present backlog into income, however finally anticipate to see our backlog meaningfully exceed the place we’re right this moment. Remember the begins of future mission wins are managed by the shopper, which makes it tough to forecast our backlog given the fabric measurement of sure of our tasks.
Okay, nice. Thanks. After which on The Roberts industrial fab enterprise, it is fairly sturdy and continues to develop properly. You stated there was a few different tasks you received. How would you kind of characterize that pattern line in that enterprise and do you see this kind of income stage, I suppose, $120 million or so annualized, has that continued to develop on a brand new run price for that enterprise?
Yeah, I imply over the previous 12 months, TRC has seen their backlog develop 180% to over $150 million. So, they’ve already skilled some great progress, whereas potential recession might trigger sure prospects to tighten their belts. I anticipate TRC to proceed so as to add a various set of each smaller and bigger tasks to their backlog over the course of the yr.
I would additionally like to say that TRC is positioned in a area experiencing great progress which offers actually good tailwinds for us. So based mostly on present visibility, I’d skew the timing of latest TRC tasks which might be on the bigger aspect in the direction of the later phases of the yr and to your level about their run price, with the backlog, it does appear to counsel that’s doable to be in that $100 million to $130 million vary.
Okay, nice. Thanks. And my final query is kind of on the margin exercise within the quarter, you talked lots about mix-shifting round. On a mission stage, are you seeing these margins otherwise you anticipate them or have been there some ins and outs within the quarter that depressed the margin?
Yeah, margins. At the start, we’re targeted on mission success, mission success for our prospects is the primary option to get repeat enterprise and future gross margins. As I discussed earlier on the decision, the ready remarks, our margins can fluctuate quarter-to-quarter associated to income combine, present mission danger profiles, business phrases and related margin expectations however due to this, we have a tendency to have a look at margins on a longer-term foundation.
And so whereas we’re nonetheless early on this present fiscal yr and our margin profile will proceed to fluctuate, it is affordable to anticipate for our full yr fiscal 2024 margins to enhance and be increased than the 13.7% that we simply reported in Q1.
Okay, nice. Thanks, David. I am going to flip it over.
Nice. Thanks Rob.
Okay. The subsequent query comes from Chris Moore with CJS Securities. Chris, please proceed.
Hey, good afternoon, and thanks for taking a couple of questions. So, possibly a couple of issues on Guernsey, so substantial completion there, what’s left to do? Is there any danger left, is there any further income coming from Guernsey and at last, is there potential for any further extra margin there?
Yeah, there may be at all times plenty of gadgets to shut out that take time after the first parts of the job are full and it actually was a fantastic occasion earlier this week to see our buyer cadence efficiently attain business operations, success for them is a hit for us.
However not solely do we have to full punch record gadgets and shut out with our buyer, however now we have to settle up issues with suppliers, subcontractors, the OEM and different events which were concerned with the mission. And these efforts can take a number of months, and in some instances, even quarters.
So and these are only a pure closing steps on any main tasks akin to Guernsey, which is our largest in historical past. So on the finish of the day, we’re at all times dedicated to delivering the absolute best mission consequence every time and there may be anticipated to be further income provided that we nonetheless acquired a number of months to go.
Obtained it. And from an extra margin standpoint probably not something further at this time limit or any ideas there?
The accounting, finally, we have got loads of closing out to do. So base off of the present accounting as of 4/30, the margins are what they at present are.
Obtained it. Change to Trumbull. From my understanding it is type of a guesstimate at this time limit, however simply making an attempt to get a way as to once you is perhaps — once you would get to peak there, is that one thing that might occur later in fiscal ’24, is that extra probably a fiscal ’25 timeframe?
Yeah. Trumbull is off to a great begin. It is assembly our expectations because it’s ramping up and is anticipated to ramp up all year long. This one has a bit little bit of an extended timeline and is not anticipated to complete until the start of 2026. And so peak exercise, it is at all times tough to find out when given the provision chain, the cadence of a mission and every part else which will or is probably not in our management, would most likely be extra of a fiscal yr 2025 exercise versus throughout the present fiscal yr.
Obtained it. And possibly let’s simply return to the gross margin for a second. So when it comes to the issues which might be going to drive the margin from right here, clearly the Gemma revenues has higher margins than a number of the different companies. So Trumbull ramping can be the important thing one at this time limit?
Yeah, I imply again to margins and again to backlog, the place we actually are excited concerning the variety of alternatives that we’re taking a look at and I understand that you are looking at what margins associated to Gemma might be within the present fiscal yr with the one main mission that is in-house, which is the Trumbull job, however bear in mind, we do have plenty of non-disclosed jobs that we’re engaged on. So Gemma continues to be the core driver for our revenues and for our enterprise and that should not change this yr.
Obtained it. And possibly simply you’ve got talked concerning the debt ceiling invoice, so inside there, they’re speaking concerning the Mountain Valley pure gasoline pipeline to be expedited simply making an attempt to get a way as to how which may or may not influence Argan?
Yeah, the allowing reform within the Mountain Valley Pipeline or MVP ought to not directly be constructive for Argan over the long term. The allowing reform ought to assist pace up the event course of and the related prices and may lead to gas-fired and renewable mission EPC alternatives for us.
Whereas the allowing reform doesn’t tackle transmission traces and pipelines, which it actually must do, the addition of the Mountain Valley Pipeline is constructive, there have been sure builders who’ve introduced tasks that previously are positioned close to it and the chance for others to be positioned alongside the Mountain Valley Pipeline path makes a complete lot of sense as entry to gasoline supply with minimal further pipeline infrastructure is vital for any gas-fired energy plant improvement. So I see it as a constructive for potential prospects down the highway.
Obtained it. And possibly only one final closing one on money circulate. So money circulate technology, in the event you guys are sometimes you picks up type of early in a mission typically a bit entry on the finish. How ought to we take into consideration fiscal ’24 versus fiscal ’23 and Q1 definitely is far stronger than I believe it was destructive money circulate from operations of $1.2 million destructive versus nearly $40 million. If you have a look at — take into consideration fiscal ’24 money circulate from operations, how do you concentrate on it versus that ’23 destructive $30 million?
That is an amazing query and our prime line money circulate numbers are at all times tough to mannequin out as a result of they’re very a lot pushed by the contractual phrases of our main tasks. With the start-up Trumbull, the money circulate has been constructive, however bear in mind, we’re at all times making important commitments on behalf of our prospects, however as tasks progress in the direction of the later phases, value and money outflows are usually larger than money inflows, which is what we skilled in fiscal ’23.
So, it relies on the timing of latest main mission begins this yr, the place we based mostly off of our visibility do anticipate new jobs over the course of the yr and particularly in the direction of the later half of the yr and that ought to lead to larger money balances for Argan general.
Obtained it. All proper. I’ll go away it there. I respect it.
We now have reached the tip of the question-and-answer session and I’ll now flip the decision over to David Watson for closing remarks.
Nice. Thanks John, and thanks all for taking part in right this moment’s name. As a reminder, please vote your shares and are available be a part of us at our Annual Assembly of Stockholders this June twentieth at our Rockville, Maryland workplaces simply outdoors our nation’s capital. So with that, we look ahead to talking with you once more after we report our Q2 fiscal 2024 earnings. Have a fantastic night.
This concludes right this moment’s convention and it’s possible you’ll disconnect your traces presently. Thanks to your participation.