AGX Argan Inc

Argan, Inc. (NYSE: AGX) (“Argan” or the “Company”) today announced financial results for its third quarter ended October 31, 2017. 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,

2017

 

2016

Change

% Change

For the Quarter Ended: Revenues $ 232,945 $ 175,444 $ 57,501 33 % Gross profit 37,718 36,578 1,140 3 Gross profit margins 16.2 % 20.8 % (4.6 ) (22 ) Net income attributable to the stockholders of the Company $ 17,229 $ 18,073 $ (844 ) (5 ) Diluted per share 1.09 1.16 (0.07 ) (6 ) EBITDA attributable to the stockholders of the Company 30,275 27,024 3,251 12 Diluted per share 1.92 1.73 0.19 11   For the Nine Months Ended: Revenues $ 723,237 $ 468,287 $ 254,950 54 % Gross profit 129,221 108,892 20,329 19 Gross profit margins 17.9 % 23.3 % (5.4 ) (23 ) Net income attributable to the stockholders of the Company $ 64,993 $ 49,977 $ 15,016 30 Diluted per share 4.11 3.23 0.88 27 EBITDA attributable to the stockholders of the Company 105,443 79,295 26,148 33 Diluted per share 6.68 5.12 1.56 30   As of:

October 31,2017

January 31,2017

Change

% Change

Cash, cash equivalents and short-term investments $ 483,681 $ 522,994

$

(39,313

)

(8

)%

Billings in excess of costs and estimated earnings 146,863 209,241 (62,378 ) (30 ) Backlog 509,000 1,011,000 (502,000 ) (50 )  

Third Quarter Results:

Revenues increased to $233 million, up 33% compared to the prior year quarter, primarily due to Gemma Power Systems (GPS) having reached peak and post-peak construction activities on four large, natural gas-fired power plants. The power industry services segment continues to drive our financial results and represents 91% of consolidated revenues for the quarter ended October 31, 2017. Gross profit increased 3% to $38 million, primarily due to the increased revenues, while gross margin percentage decreased from 20.8% to 16.2% compared to the prior year quarter, which primarily reflected the achievement of final completion of two natural gas-fired power plant projects in the prior year period, as well as the effects of increased labor and subcontractor cost estimates in the current period for certain projects.

Selling, general and administrative expenses increased $0.3 million to $10.1 million, primarily reflecting the cost of a larger organization necessary to support increased operations and to expand into new markets. However, these expenses decreased as a percentage of revenues to 4.3% from 5.6% in the prior year quarter. Other income increased $1.0 million quarter over quarter, due to increased yields and short-term investment balances. There was no net income attributable to non-controlling interests for the current quarter compared to $1.2 million in the prior year quarter, as activities on two large power plant projects were completed last year by the joint ventures. The income tax expense and effective rate were higher in the current quarter as compared to the prior year quarter due to certain favorable adjustments in the prior year quarter compared to unfavorable adjustments in the current quarter. Exclusive of adjustments, the estimated annual effective income tax is 36.7% for the current year compared to 35.2% at this time last year, an increase primarily due to the decrease in non-controlling interests. These factors resulted in net income attributable to our stockholders decreasing 5% to $17.2 million, or $1.09 per diluted share, compared to $18.1 million, or $1.16 per diluted share, for the prior year quarter. EBITDA attributable to the stockholders for the quarter ended October 31, 2017 increased 12% to $30.3 million, or $1.92 per diluted share, from $27.0 million, or $1.73 per diluted share, for the prior year quarter.

Nine Month Results:

For the nine months ended October 31, 2017, consolidated revenues increased 54% to a record $723 million over the prior year period, primarily due to the ramped-up, peak and post-peak construction activities of GPS on four large, natural gas-fired power plants. The power industry services segment represented 92% of consolidated revenues for the nine months ended October 31, 2017. Gross profit increased 19% to $129 million, primarily due to the increased revenues, while gross margin percentage decreased from 23.3% to 17.9% compared to the prior year period, reflecting the reason discussed above, the changes in the mix and progress of various power plant projects and the differences in their respective gross margins.

For the reasons discussed above, for the nine months ended October 31, 2017, selling, general and administrative expenses increased $6.0 million to $30.4 million, other income increased $2.9 million and net income attributable to non-controlling interests decreased 96%, or $6.4 million over the prior year period. In addition, as described above, income tax expense increased $10.6 million due to higher pre-tax income, an increased estimated annual effective income tax and other adjustments. These factors resulted in net income attributable to our stockholders for the nine months ended October 31, 2017 increasing 30% to $65.0 million, or $4.11 per diluted share, compared to $50.0 million, or $3.23 per diluted share, for the prior year period. EBITDA attributable to the stockholders for the nine months ended October 31, 2017 increased 33% to $105.4 million, or $6.68 per diluted share, from $79.3 million, or $5.12 per diluted share, for the prior year period.

The Company’s balance sheet continues to strengthen. As of October 31, 2017, cash, cash equivalents and short-term investments totaled $484 million and net liquidity was $292 million. The Company has no bank debt. The work performed in the quarter reduced the contract backlog to $0.5 billion as of October 31, 2017, including Atlantic Projects Company’s (APC) contract to perform certain EPC services for the expansion of an existing gas-fired power station in Spalding, England that was added to backlog during the quarter.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief Executive Officer, stated, “On a trailing twelve-month basis, we have reached $930 million in revenues, $85 million in net income and $137 million in EBITDA. Our fiscal year results just two years ago were less than half of each of these amounts. This growth is a direct result of our execution on major EPC projects in this increasingly challenging market over the past two years. We are proud of this growth and these results, and we are pleased to have added some great projects in the United Kingdom to our backlog, but we know we need to add many more. We remain hard at work in those efforts as we endeavor to continue increasing long term shareholder value.”

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 performance of our power industry services business; (2) the Company’s ability to successfully and profitably integrate acquisitions; and (3) the Company’s ability to achieve 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 detailed from time to time in Argan’s filings with the SEC. In addition, reference is hereby made to cautionary statements 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 EndedOctober 31,

Nine Months EndedOctober 31,

2017     2016   2017     2016   REVENUES $ 232,945 $ 175,444 $ 723,237 $ 468,287 Cost of revenues   195,227   138,866     594,016     359,395 GROSS PROFIT 37,718 36,578 129,221 108,892 Selling, general and administrative expenses 10,119 9,848 30,408 24,429 Impairment loss   —   —     —     1,979 INCOME FROM OPERATIONS 27,599 26,730 98,813 82,484 Other income, net   1,692   690     4,221     1,283 INCOME BEFORE INCOME TAXES 29,291 27,420 103,034 83,767 Income tax expense   12,062   8,194     37,738     27,122 NET INCOME 17,229 19,226 65,296 56,645 Net income attributable to non-controlling interests   —   1,153     303     6,668

NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.

  17,229   18,073   64,993   49,977  

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

Basic $ 1.11 $ 1.19   $ 4.19   $ 3.34 Diluted $ 1.09 $ 1.16   $ 4.11   $ 3.23  

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic   15,545   15,137     15,509     14,974 Diluted   15,793   15,601   15,796   15,490   CASH DIVIDENDS PER SHARE $ 1.00 $ 1.00   $ 1.00   $ 1.00     ARGAN, INC. AND SUBSIDIARIES Reconciliations to EBITDA (In thousands)(Unaudited)   Three Months Ended October 31, 2017   2016 Net income $ 17,229 $ 19,226 Less EBITDA attributable to noncontrolling interests — (1,153 ) Income tax expense 12,062 8,194 Depreciation 726 525 Amortization of purchased intangible assets   258     232   EBITDA attributable to the stockholders of the Company $ 30,275   $ 27,024     Nine Months Ended October 31, 2017 2016 Net income $ 65,296 $ 56,645 Less EBITDA attributable to noncontrolling interests (303 ) (6,668 ) Income tax expense 37,738 27,122 Depreciation 1,936 1,444 Amortization of purchased intangible assets   776     752   EBITDA attributable to the stockholders of the Company $ 105,443   $ 79,295    

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 31,2017

January 31,2017

ASSETS

(Unaudited)  

CURRENT ASSETS

Cash and cash equivalents $ 149,708 $ 167,198 Short-term investments 333,973 355,796 Accounts receivable 83,681 54,836 Costs and estimated earnings in excess of billings 10,197 3,192 Prepaid expenses and other current assets   6,236     6,927   TOTAL CURRENT ASSETS 583,795 587,949 Property, plant and equipment, net 15,257 13,112 Goodwill 34,913 34,913 Other intangible assets, net 7,405 8,181 Deferred taxes 383 241 Other assets   548     92   TOTAL ASSETS $ 642,301   $ 644,488     LIABILITIES AND EQUITY   CURRENT LIABILITIES Accounts payable $ 114,448 $ 101,944 Accrued expenses 31,005 39,539 Billings in excess of costs and estimated earnings   146,863     209,241   TOTAL CURRENT LIABILITIES 292,316 350,724 Deferred taxes   1,788     1,195   TOTAL LIABILITIES   294,104     351,919     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; 15,551,952 and 15,461,452 shares issued at October 31 and January 31, 2017, respectively; 15,548,719 and 15,458,219 shares outstanding at October 31 and January 31, 2017, respectively

 

2,333

 

2,319

Additional paid-in capital 141,766 135,426 Retained earnings 204,095 154,649 Accumulated other comprehensive losses   (8 )   (762 ) TOTAL STOCKHOLDERS’ EQUITY 348,186 291,632 Noncontrolling interests   11     937   TOTAL EQUITY   348,197     292,569   TOTAL LIABILITIES AND EQUITY $ 642,301   $ 644,488    

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