AGX Argan Inc

Argan, Inc. (NYSE: AGX) (“Argan” or the “Company”) today announced financial results for its third quarter ended October 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)):

     

October 31,

2018

 

2017

Change

% Change

For the Quarter Ended: Revenues $ 116,459 $ 232,945 $ (116,486 ) (50 )% Gross profit 29,532 37,718 (8,186 ) (22 ) Gross margins 25.4 % 16.2 % 9.2 % 57 Net income attributable to the stockholders of the Company $ 32,434 $ 17,229 $ 15,205 88 Diluted per share 2.07 1.09 0.98 90 EBITDA attributable to the stockholders of the Company 21,025 30,275 (9,250 ) (31 ) Diluted per share 1.34 1.92 (0.58 ) (30 )   As of:

October 31, 2018

January 31,2018

Change

% Change

Cash, cash equivalents and short-term investments $ 314,787 $ 434,015 $ (119,228 ) (27 ) % Net liquidity (1) 339,616 301,817 37,799 13 Project backlog 365,000 379,000 (14,000 ) (4 )  

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

 

As successful execution by Gemma Power Systems (“GPS”) on four large gas-fired power plant projects has reached the final stages, revenues saw a decline during the current quarter to $116.5 million compared to $232.9 million in the prior year quarter. Construction activities for these projects have matured from peak levels which the Company experienced during the prior fiscal year, to the commissioning, start up and final activities. The decline in revenues at GPS was partially offset by increased revenues at Atlantic Projects Company, as it reached peak construction activities on two power plant projects, and The Roberts Company during the third quarter. Gross profits decreased by 22% to $29.5 million from $37.7 million for the prior year, reflecting primarily the reduction in consolidated revenues between periods. Our gross margin percentage increased to 25.4% from 16.2% for the prior year quarter, reflecting favorable project close-out adjustments to the gross profits of certain projects that have reached substantial completion.

The levels of selling, general and administrative expenses rose by $1.0 million, or 10%, as compared to the prior year period due primarily to increased non-chargeable staff costs.

During the current quarter, the Company completed a year-long detailed review of the work performed by its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development (“R&D”) credits that may be available to reduce current and prior year income taxes. Based on this review, the resulting income tax benefits, associated with R&D activities conducted in prior years, in the total amount of $16.5 million, or $1.05 per diluted share, have been recognized in income taxes in the current quarter. Also, the Tax Cuts and Jobs Act had a favorable impact on our tax rate, resulting in an estimated annual effective income tax rate of 28% (before the effects of R&D credits) for the current quarter, compared to an estimated effective income tax rate of 37% for the third quarter last year.

These factors resulted in net income attributable to our stockholders increasing 88% to $32.4 million for the current quarter, or $2.07 per diluted share, from $17.2 million, or $1.09 per diluted share, for the prior year quarter. EBITDA attributable to our stockholders for three months ended October 31, 2018 decreased 31% to $21.0 million, or $1.34 per diluted share, from $30.3 million, or $1.92 per diluted share, for the prior year quarter. We paid our third regular quarterly cash dividend of $0.25 per share in October.

As of October 31, 2018, our cash, cash equivalents and short-term investments totaled $315 million and net liquidity was $340 million; plus, we had no bank debt. Our project backlog was $365 million as of October 31, 2018, slightly down from $379 million at the end of the prior year, mostly due to year-to-date work on existing backlog partially offset by the value of an EPC contract entered into by GPS during the first quarter. 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 with projected start dates extending through 2019.

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-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 October 31,

Nine Months Ended October 31, 2018   2017 2018   2017   REVENUES $ 116,459 $ 232,945 $ 394,495 $ 723,237 Cost of revenues   86,927     195,227     318,803     594,016   GROSS PROFIT 29,532 37,718 75,692 129,221 Selling, general and administrative expenses   11,147     10,119     31,162     30,408   INCOME FROM OPERATIONS 18,385 27,599 44,530 98,813 Other income, net   1,429     1,692     5,121     4,221   INCOME BEFORE INCOME TAXES 19,814 29,291 49,651 103,034 Income tax benefit (expense)   12,560     (12,062 )   4,509     (37,738 ) NET INCOME 32,374 17,229 54,160 65,296 Net (loss) income attributable to non-controlling interests   (60 )   —     (83 )   303  

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

32,434 17,229 54,243 64,993   Foreign currency translation adjustments   (1,092 )   (139 )   (2,364 )   754   COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

$

31,342

  $ 17,090  

$

51,879

  $ 65,747    

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

Basic $ 2.08   $ 1.11  

$

3.48

  $ 4.19   Diluted $ 2.07   $ 1.09   $ 3.46   $ 4.11    

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic   15,569     15,545     15,568     15,509   Diluted   15,702     15,793     15,685     15,796     CASH DIVIDENDS PER SHARE $ 0.25   $ 1.00   $ 0.75   $ 1.00       ARGAN, INC. AND SUBSIDIARIES Reconciliations to EBITDA

(In thousands) (Unaudited)

  Three Months Ended October 31, 2018   2017 Net income $ 32,374 $ 17,229 Less EBITDA attributable to noncontrolling interests 60 — Interest expense — — Income tax (benefit) expense (12,560 ) 12,062 Depreciation 898 726 Amortization of purchased intangible assets   253     258   EBITDA attributable to the stockholders of the Company $ 21,025   $ 30,275     Nine Months Ended October 31, 2018 2017 Net income $ 54,160 $ 65,296 Less EBITDA attributable to noncontrolling interests 83 (303 ) Interest expense 659 — Income tax (benefit) expense (4,509 ) 37,738 Depreciation 2,465 1,936 Amortization of purchased intangible assets   759     776   EBITDA attributable to the stockholders of the Company $ 53,617   $ 105,443       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)   October 31, 2018 January 31, 2018 (Unaudited) ASSETS   CURRENT ASSETS Cash and cash equivalents $ 155,791 $ 122,107 Short-term investments 158,996 311,908 Accounts receivable, net 43,612 24,756 Contract assets 55,628 13,847 Other current assets   25,465   12,410 TOTAL CURRENT ASSETS 439,492 485,028 Property, plant and equipment, net 19,866 15,299 Goodwill 34,329 34,329 Other purchased intangible assets, net 6,390 7,149 Deferred taxes 315 439 Other assets   377   426 TOTAL ASSETS $ 500,769 $ 542,670

LIABILITIES AND EQUITY

 

CURRENT LIABILITIES

Accounts payable $ 64,987 $ 100,238 Accrued expenses 25,111 35,360 Contract liabilities   9,778   47,613 TOTAL CURRENT LIABILITIES 99,876 183,211 Deferred taxes   1,388   1,293 TOTAL LIABILITIES   101,264   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; 15,573,952 and 15,570,952 shares issued at October 31 and January 31, 2018, respectively; 15,570,719 and 15,567,719 shares outstanding at October 31 and January 31, 2018, respectively

2,336

2,336

Additional paid-in capital 144,507 143,215 Retained earnings 253,716 211,150 Accumulated other comprehensive (loss) income   (942 )   1,422 TOTAL STOCKHOLDERS’ EQUITY 399,617 358,123 Non-controlling interests   (112 )   43 TOTAL EQUITY   399,505   358,166 TOTAL LIABILITIES AND EQUITY $ 500,769 $ 542,670  

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Company Contact:Rainer Bosselmann301.315.0027

Investor Relations Contact:David Watson301.315.0027