Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Argan Inc (AGX, Financial) reported a 52% increase in consolidated revenues to $157.7 million for the first fiscal quarter ended April 30, 2024.
- The company achieved an EBITDA of $11.9 million, demonstrating improved profitability.
- Project backlog increased to $824 million, with approximately $300 million in renewable projects.
- Argan Inc (AGX) has a strong balance sheet with $416 million in cash and investments, net liquidity of $247 million, and no debt.
- The company is well-positioned to benefit from the growing demand for energy infrastructure, driven by data centers, electric vehicles, and onshoring of manufacturing operations.
Negative Points
- Argan Inc (AGX) incurred a loss of $2.6 million in the quarter due to challenges at APC's Kilroot project in Northern Ireland.
- The Kilroot project has unresolved contract variations and extension of time claims exceeding $25 million, with potential for additional charges.
- Gross profit percentage declined from 13.7% to 11.4% compared to the previous year, partly due to the unfavorable adjustment on the Kilroot project.
- Selling, general, and administrative expenses increased slightly to $11.4 million, although they decreased as a percentage of revenues.
- The company's smallest segment, Telecommunications Infrastructure Services, contributed only 2% of first-quarter revenues, indicating limited growth in this area.
Q & A Highlights
Q: Congrats on another nice quarter. I know you're limited Kilroot, sounds like you're hopeful that there is $25 million in potential recovery out there. You took the $2.6 million charge in Q1. Are there likely or possible additional charges coming?
A: That's a good question. We have recorded a $12.7 million loss on the project. Additionally, after quarter end, the customer pulled our letter of credit in the amount of $9.2 million, which we believe was inappropriate. APC has significant unresolved contract variations and extension of time claims, among others, related to the project in amounts exceeding $25 million, and this is expected to increase materially. There is a possibility of downside, but also a possibility of upside.
Q: Looks like Trumbull is starting to make good progress. Can you talk a little bit about the cadence of the project?
A: This project remains right on schedule. We expect to be in peak activity throughout the year and as it gets into start-up commissioning later next year.
Q: The 405 megawatt solar project that you have limited notice to proceed. What has to happen to begin construction in fiscal '25 on that?
A: It's really just a matter of getting the full notice to proceed. The limited notice to proceed has already enabled us to start doing a number of things. We expect to start actively in a full notice to proceed this summer.
Q: You referenced a letter of intent on a significant gas project. Is this a different project from the one in Texas?
A: Yes, it is a different project. The Texas project is still in progress. The new project in Louisiana involves installing 590 megawatt gas turbines within an LNG facility. This project has a quick start and significant ramp-up.
Q: Could you characterize how the pipeline is at this point, how active it is, and any changes in the new project pipeline over the last six months?
A: Since January, we've received three full notices to proceed and one limited notice to proceed on renewable jobs totaling 565 megawatts of solar power and 22 megawatts of battery storage. We expect to add additional large projects over the course of the year, representing a mix of both renewable and gas.
Q: On the Louisiana project, how would the revenue cycle compare to a traditional gas plant project?
A: This job is more surgical and is a subcontract, so it should be a relatively quick burn over a shorter period of time compared to our fixed price EPC contracts, which are typically 3 to 3.5 years long.
Q: On the battery and solar projects, how do those work in terms of revenue flow?
A: Some of these projects are full EPC jobs, while others involve the project owner buying the solar panels. Typically, these projects are less than a year long, but larger projects like the 405 megawatt job will take longer due to their size and scope.
Q: Could you provide more details on the potential recovery from the Kilroot project?
A: We have identified and submitted claims in excess of $25 million related to this project. We will vigorously pursue these claims through legal means if necessary.
Q: What are the key factors driving the growth in your project backlog?
A: The significant increase in our renewables backlog reflects the effectiveness of our growth and diversity plan. We are seeing a growing urgency to reinforce energy infrastructure to ensure consistent and reliable power supply in the face of anticipated unprecedented consumption levels.
Q: How is the demand for TRC services evolving?
A: We are seeing consistently strong demand for TRC services, particularly in the southeast region of the US, which is a high-growth area for TRC's focused industries. We are determined to drive continued growth at TRC as demand for new or refurbished industrial sites intensifies.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
