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Argan, Inc. Reports Second Quarter Results

ROCKVILLE, Md.--(BUSINESS WIRE)--

Argan, Inc. (AGX) (“Argan” or the “Company”) today announced financial results for its second quarter ended July 31, 2019. 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):

 

 

July 31,

 

 

 

 

 

2019

 

2018

 

Change

For the Quarter Ended:

 

 

 

Revenues

$

63,059

 

$

136,670

 

$

(73,611

)

Gross profit

 

2,965

 

 

30,708

 

 

(27,743

)

Gross profit margins

 

4.7

%

 

22.5

%

 

(17.8

)%

Net income attributable to the stockholders of the Company

$

1,154

 

$

16,972

 

$

(15,818

)

Diluted per share

 

0.07

 

 

1.08

 

 

(1.01

)

EBITDA attributable to the stockholders of the Company

 

(4,084

)

 

24,445

 

 

(28,529

)

Diluted per share

 

(0.26

)

 

1.56

 

 

(1.82

)

 

 

 

 

As of:

July 31,

2019

January 31,

2019

Cash, cash equivalents and short-term investments

$

233,624

 

$

296,531

 

$

(62,907

)

Net liquidity (1)

 

294,423

 

 

335,032

 

 

(40,609

)

Project backlog

 

1,369,000

 

 

1,094,000

 

 

275,000

 

 

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

 

Our consolidated revenues for the three months ended July 31, 2019 were $63.1 million which represented a decline of $73.6 million from $136.7 million for the three months ended July 31, 2018. The decline is primarily due to Gemma Power Systems (“GPS”) reaching substantial completion on four gas-fired power plant projects during the year ended January 31, 2019 and concluding activities on a fifth gas-fired power plant early in the first quarter of the current fiscal year. We have not replaced those lost revenues as new project starts have taken longer to occur than anticipated. We expect this trend to reverse over the coming quarters as GPS has received a full notice to proceed (“FNTP”) on the largest project in its history. For the three months ended July 31, 2019, the majority of consolidated revenues were contributed by our separate businesses of The Roberts Company (“TRC”), which reported record quarterly revenues during the current quarter, and Atlantic Project Company (“APC”). Together, TRC and APC contributed 94% of consolidated revenues for the three months ended July 31, 2019.

As previously disclosed, APC, our international subsidiary, has encountered significant and escalating operational and contractual challenges in completing a subcontract on a biomass-fired power plant construction project in the United Kingdom. At this time, APC continues to perform the works on the plant and is negotiating with the customer in an effort to resolve differences. APC has conducted multiple comprehensive reviews of the remaining contract work, prepared updated timelines for the completion of the project and assessed other factors. Currently, we estimate that the forecasted costs to perform the contracted work will exceed projected revenues by $30.9 million. The total amount of this loss was recognized in our operating results for the six-month period ended July 31, 2019, including $3.4 million reflected in our operating results for the three months ended July 31, 2019.

However, an income tax benefit of $6.4 million, that was recognized for the current quarter, offset the contract loss for the quarter and resulted in net income attributable to our stockholders of $1.2 million, or $0.07 earnings per diluted share, for the three months ended July 31, 2019 compared to net income attributable to our stockholders of $17.0 million, or $1.08 earnings per diluted share, for the prior year quarter. EBITDA attributable to our stockholders for the quarter ended July 31, 2019 decreased to $(4.1) million, or $(0.26) per diluted share, from $24.4 million, or $1.56 per diluted share, for the prior year quarter. The Company paid its regular quarterly cash dividend of $0.25 per share in July.

As of July 31, 2019, our cash, cash equivalents and short-term investments totaled $234 million and net liquidity was $294 million; plus, we had no debt. As mentioned earlier, subsequent to quarter-end we were pleased to announce that GPS received a FNTP with engineering, procurement and construction activities under a contract for a 1,875 MW natural gas-fired power plant in Guernsey County, Ohio. Construction of this state-of-the-art combined cycle facility has begun with completion scheduled in 2022. Also, during the quarter, GPS entered into an EPC services contract to construct a 625 MW natural gas-fired power plant in Harrison County, West Virginia. Our project backlog has been increased to approximately $1.4 billion as of July 31, 2019 from $1.1 billion as of January 31, 2019.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief Executive Officer, stated, “We were delighted to receive a FNTP on a major project for Gemma as we convert business development efforts and project backlog into active jobs. We are also pleased with record revenues at Roberts this quarter though our overall bottom line was negatively impacted by an additional $3.4 million loss on our APC project in the United Kingdom. We look forward to increased revenues over the next couple of years as Gemma starts new projects over the next several quarters.”

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 our future financial performance is subject to risks and uncertainties including but not limited to: (1) the strong operational performance of GPS; (2) the Company’s ability to mitigate losses related to APC’s loss contract; (3) 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 (4) 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-Q and 10-K, 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,

 

 

2019

 

2018

 

2019

 

2018

 

 

 

 

 

 

 

 

 

REVENUES

 

$

63,059

 

 

$

136,670

 

 

$

112,603

 

 

$

278,036

 

Cost of revenues

 

 

60,094

 

 

 

105,962

 

 

 

130,664

 

 

 

231,876

 

GROSS PROFIT (LOSS)

 

 

2,965

 

 

 

30,708

 

 

 

(18,061

)

 

 

46,160

 

Selling, general and administrative expenses

 

 

10,038

 

 

 

10,378

 

 

 

19,626

 

 

 

20,015

 

Impairment loss

 

 

 

 

 

2,072

 

 

(LOSS) INCOME FROM OPERATIONS

 

 

(7,073

)

 

 

20,330

 

 

 

(39,759

)

 

 

26,145

 

Other income, net

 

 

1,642

 

 

 

2,928

 

 

 

3,894

 

 

 

3,692

 

(LOSS) INCOME BEFORE INCOME TAXES

 

 

(5,431

)

 

 

23,258

 

 

 

(35,865

)

 

 

29,837

 

Income tax benefit (expense)

 

 

6,411

 

 

 

(6,314

)

 

 

6,932

 

 

 

(8,051

)

NET INCOME (LOSS)

 

 

980

 

 

 

16,944

 

 

 

(28,933

)

 

 

21,786

 

Net loss attributable to non-controlling interests

 

 

(174

)

 

 

(28

)

 

 

(287

)

 

 

(23

)

NET INCOME (LOSS) ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

 

1,154

 

 

 

16,972

 

 

 

(28,646

)

 

 

21,809

 

Foreign currency translation adjustments

 

 

(6

)

 

 

(693

)

 

 

(1,060

)

 

 

(1,272

)

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

 

$

1,148

 

$

16,279

 

 

$

(29,706

)

$

20,537

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

1.09

 

 

$

(1.84

)

 

$

1.40

 

Diluted

 

$

0.07

 

 

$

1.08

 

 

$

(1.84

)

 

$

1.39

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

 

 

 

 

 

 

 

 

Basic

 

 

15,633

 

 

 

15,568

 

 

 

15,608

 

 

 

15,568

 

Diluted

 

 

15,757

 

 

 

15,673

 

 

 

15,608

 

 

 

15,673

 

 

 

 

 

 

 

 

 

 

CASH DIVIDENDS PER SHARE

 

$

0.25

 

 

$

0.25

 

 

$

0.50

 

 

$

0.50

 

 

 

ARGAN, INC. AND SUBSIDIARIES

Reconciliations to EBITDA

(In thousands)(Unaudited)

 

Three Months Ended July 31,

 

2019

 

2018

Net income

$

980

 

$

16,944

Less EBITDA attributable to noncontrolling interests

 

172

 

 

28

Interest expense

 

110

Income tax (benefit) expense

 

(6,411

)

 

6,314

Depreciation

 

882

 

 

796

Amortization of purchased intangible assets

 

293

 

 

253

EBITDA attributable to the stockholders of the Company

$

(4,084

)

$

24,445

 
 

 

Six Months Ended July 31,

 

2019

 

2018

Net (loss) income

$

(28,933

)

$

21,786

Less EBITDA attributable to noncontrolling interests

 

287

 

 

23

Interest expense

 

659

Income tax (benefit) expense

 

(6,932

)

 

8,051

Depreciation

 

1,711

 

 

1,567

Amortization of purchased intangible assets

 

592

 

 

506

EBITDA attributable to the stockholders of the Company

$

(33,275

)

$

32,592

 

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 results of operations presented in accordance with GAAP. 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, 2019

January 31, 2019

 

(Unaudited)

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

Cash and cash equivalents

$

170,710

 

$

164,318

 

Short-term investments

 

62,914

 

 

132,213

 

Accounts receivable, net

 

45,989

 

 

36,174

 

Contract assets

 

51,742

 

 

58,357

 

Other current assets

 

21,782

 

 

25,286

 

TOTAL CURRENT ASSETS

 

353,137

 

 

416,348

 

Property, plant and equipment, net

 

20,903

 

 

19,778

 

Goodwill

 

30,766

 

 

32,838

 

Other purchased intangible assets, net

 

5,545

 

 

6,137

 

Right-of-use assets

 

1,043

 

Deferred taxes

 

7,979

 

 

1,257

 

Other assets

 

351

 

 

290

 

TOTAL ASSETS

$

419,724

 

$

476,648

 

 

 

 

LIABILITIES AND EQUITY

 

CURRENT LIABILITIES

Accounts payable

$

26,028

 

$

39,870

 

Accrued expenses

 

30,928

 

 

33,097

 

Contract liabilities

 

1,758

 

 

8,349

 

TOTAL CURRENT LIABILITIES

 

58,714

 

 

81,316

 

Lease liabilities

 

616

 

Other noncurrent liabilities

 

1,325

 

 

960

 

TOTAL LIABILITIES

 

60,655

 

 

82,276

 

 

 

 

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; 15,636,535 and 15,577,102 shares issued at July 31 and January 31, 2019, respectively; 15,633,302 and 15,573,869 shares outstanding at July 31 and January 31, 2019, respectively

 

2,346

 

 

2,337

 

Additional paid-in capital

 

147,445

 

 

144,961

 

Retained earnings

 

211,167

 

 

247,616

 

Accumulated other comprehensive loss

 

(1,406

)

 

(346

)

TOTAL STOCKHOLDERS’ EQUITY

 

359,552

 

 

394,568

 

Non-controlling interests

 

(483

)

 

(196

)

TOTAL EQUITY

 

359,069

 

 

394,372

 

TOTAL LIABILITIES AND EQUITY

$

419,724

 

$

476,648

 

 

 

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