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spk04: Good evening, ladies and gentlemen, and welcome to the Argonne Inc. conference call for first quarter fiscal 2024 and April 30 2023. This call is being recorded. All participants have been placed on a listen only mode following management's remarks. The call will be open for questions. There is a slide presentation that accompanies today's remarks, which can be accessed via the webcast. At this time, it is my pleasure to turn the floor over to your host for today, John Nesbitt of IMS Investor Relations. Please go ahead.
spk03: Thank you. Good evening and welcome to our conference call to discuss Argonne's results for the first quarter of fiscal year 2024 and April 30 2023. On the call today, we have David Watson, Chief Executive Officer. I'll take a moment to read the Safe Harbor Statement. Statements made during this conference call and presented in the presentation that are based on historical facts are forward-looking statements. Such statements include, but are not limited to, projections or statements of future goals and targets regarding the company's revenues and profits. These statements are subject to known and unknown factors and risks. The company's actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements and by some of the factors and risks that could cause or contribute to such material differences have been described in this afternoon's press release in Argonne's filing with the U.S. Securities and Exchange Commission. These statements are based on information and understanding that we believe to be accurate as of today and do not undertake any duty to update such forward-looking statements. Earlier this afternoon, as at least most of you know, the company issued a press release announcing its first quarter financial results and filed its first quarter Form 10Q with the Securities and Exchange Commission. Okay, I'll now turn the call over to David Watson, Chief Executive Officer of Argonne. Go ahead, David.
spk01: Thanks, John. And thank you everyone for joining today. I'll start by reviewing some of the highlights of our operations and financial results and activities for the first quarter of fiscal 2024, ended April 30, 2023. Then we'll open up the call for a brief Q&A and for that portion of the call, I'll be joined by Hank Diley, our Chief Financial Officer. Argonne is a leading full-service partner to the power industry, well positioned to continue driving long-term growth as demand for diverse energy sources continues to grow. The long-term macro environment continues to strengthen for us, in part driven by the refreshment and replacement of on-demand power generating infrastructure as aging plants and facilities are retired and also supported by federal legislation such as the Inflation Reduction Act. Most recently, there is a potential upside for us from the debt ceiling bill, which was signed by President Biden on June 3. The bill includes language addressing the streamlining of the current permitting process for energy generating facilities, which would ease certain constraints on the power industry. Backlog of over 0.8 billion as of April 30, 2023 is notable given that we did not add any major projects during the quarter and our balance sheet remains strong with $317 million of cash in liquid investments. Additionally, we carry no debt. During the first quarter, we repurchased approximately 93,000 shares of our common stock for a total spend of approximately $3.7 million. Revealing our three reportable business segments, the power industry services represented 68% of our first quarter revenues. This segment is comprised of our GMEP power systems in Atlantic Project Company operating units and focuses on the construction of all types of power facilities, including efficient gas-fired power plants, solar energy fields, biomass facilities, and wind farms. The industrial field and fabrication services, which is represented by the Robert Company, had a strong quarter and contributed 29% of our first quarter revenue. Roberts provides solutions to mostly industrial and manufacturing clients with a focus on agriculture, petrochemical, pulp and paper, water and power industries, as well other newer industries adding to or expanding the number of production facilities in the Southeast. This segment offers construction and other field services like plant maintenance turnarounds, shutdowns, and emergency mobilization, as well as pipe and vessel fabrication. Lastly, we have our telecommunications infrastructure services group, which is our smallest segment, which contributed 3% of our first quarter revenues. SMC Infrastructure Solutions is our operating brand in this segment, providing inside the premise wiring services for federal government locations and military installations requiring high level security clearance, as well as outside construction services for the utility and telecommunications sectors. Argan brings a broad range of construction and project management capabilities, strongly positioning us as the industry continues to transition from coal-fired power plants to natural gas and renewable energy plants. With the increased activity around developing more environmentally friendly power resources, we are focused on leveraging our expertise and reputation as a proven and reliable construction partner to increase our leadership position in our space. Additionally, the new debt ceiling legislation includes reforms designed to streamline and accelerate the permitting process for energy generating facilities. With these provisions included, our industry should benefit from positive tailwinds. We are positioned to benefit from both the decline of coal-fired power generation and the growth of more sustainable alternatives. Where I've shown you this slide before and think it's important to reiterate the decline to date and the anticipated future decline in coal-fired power generation. Carbon neutrality is an important environmental goal for the US and many other countries. By 2050, the coal-fired power generation in the US is expected to drop by an additional 70% to represent only 5% of net electricity generation. We believe this transition will create significant potential tailwinds for our business. As the industry shifts to our new power generation technologies, it's important to note that 81% of our current backlog of over 0.8 billion represents projects that support lower carbon emissions, illustrating our leadership role in the transition to cleaner power generation. Now turning to our financial performance. On slide nine, we present our consolidated income statement for the first quarter of fiscal 2024. First quarter 2024 revenues increased 4% to 104 million. Our top line growth in the quarter was largely driven by our ability to drive revenue from some of the smaller projects we're involved with, which augment our traditionally larger projects. These smaller projects not only create stability in our revenue base, but are also driving incremental growth. Our ability to meet additional requests from contracted customers allows them to be flexible and is a competitive advantage when we are competing for contracts. Often, when revenues are less than expected, it does not mean lost revenues. It just means these revenues have pushed out to the right due to the variability in construction projects. So we expect to see some variability in revenues recognized, as well as in gross margins, as certain projects get close to completion and others are just beginning to ramp. Gross margins in the first quarter were 13.7%. It declined as compared to .7% in the first quarter of fiscal 2023, primarily due to changes in our revenue mix. As we've mentioned previously, our margins can fluctuate quarter to quarter related to the revenue mix, current project risk profiles, commercial terms, and associated margin expectations. For example, time and material contracts are less risky than fixed price and therefore generate a lower margin profile, which is acceptable on a risk adjusted basis. Additionally, margins may also be impacted by where we are in the project lifecycle. So regardless, margin performance remains a focus and a historical strength here at Oregon. Selling general and administrative expenses of 11 million were consistent with the prior year preparable quarter. During the quarter, we also had a one time pre-tax charge of approximately 3.2 million or 24 cents per diluted share related to a previously reported fraudulently induced wire transfers, which is reflected in the other loss line item. Net income for first quarter 2024 was 2.1 million or 16 cents per diluted share compared to net income of 7 million or 50 cents per diluted share in the first quarter of fiscal 2023. EBITDA, which is earnings before interest, taxes, depreciation, and amortization for the first quarter of fiscal 2024 was 4 million as compared to 11 million in the first quarter of fiscal 2024. The decrease in net income in the EBITDA was primarily due to the change in the revenue mix for the first quarter, the lower gross margin, and the fraud loss. Our consolidated project backlog of over 0.8 billion as of April 30, 2023 is consistent with where we stood at year end fiscal 23 and reflects the solid pipeline of opportunities we're seeing in the ongoing momentum in our business. Notably, our backlog is characterized by longer term, fully committed projects in both the power and industrial service segments. On slide 11, we present certain major projects currently included in our backlog. The Guernsey Power Station, which is the largest single phase gas fired power plant project in the US, has been a tremendous project for us. In fact, while there is some work to be completed over the next several months, I was just there earlier this week for the ribbon cutting ceremony, celebrating the start of commercial operations. This highly efficient state of the art plant will provide enough power to over 1.4 million homes in the PGA region and support the reliability of the power grid. The Maple Hill Solar Facility, which is a nice representation of our capabilities in the renewable space, is also nearing completion. So from both the Guernsey Power Station and the Maple Hill Solar Facility, we saw reduced revenues in the first quarter of fiscal 2024 as compared to last year when construction activities on those projects were in full swing. Gemma's new significant project, the Trumbull Energy Center, is in the early stages of construction, contributed increased revenues, and is expected to continue the ramp up over the course of the year. The Kilroup Power Station and the ESB Flexion Peeker Power Plants are projects that are at or near peak activity. As I mentioned earlier, we are also performing certain tasks related to several undisclosed projects in both the traditional gas fired and the renewable spaces, and we look forward to providing more details on these projects when we receive full notices to proceed with them. Additionally, Roberts Company has been awarded two distinct water treatment plant projects, increasing the strength and diversity of our backlog. With our visibility today, we believe that as we move through fiscal 2024, our portfolio of projects will provide a solid base for future growth and our consolidated revenues. Our balance sheet remains strong. As of April 30, 2023, cash equivalents, short-term investments, and available for sale securities totaled $317 million, and net liquidity was $233 million with no debt. Stockholders' equity was $278 million at April 30, 2023. As you can see from this liquidity bridge, our business model ordinarily requires a very low level of capital expenditures. Our net liquidity was consistent with year end and remains a robust $232.6 million as of April 30, 2023. Since November 2021, we have returned a total of approximately $92 million to shareholders as we've repurchased approximately 2.5 million shares of our common stock, or approximately 15% of shares outstanding at the beginning of the program, which equates to an average price of $37.27 per share. Additionally, we've regularly paid a quarterly cash dividend of $0.25 per share since fiscal 2019. ARGN has always been very focused on long-term value creation for shareholders. As we all know, quarterly operating results will at times be a bit lumpy due to the timing of contracts, and we remain focused on delivering long-term value to shareholders. Since 2008, we have grown our tangible book value and cumulative dividends per share considerably. Fiscal 2024 is off to a solid start with project backlog maintaining at over $0.8 billion. Our project pipeline is robust and diverse, contributing to our ability to drive consistency in our revenue performance as certain projects finish up and new projects ramp up. Our margin performance moderated slightly in the quarter, primarily related to revenue mix. Our margin profile remains at focus and has demonstrated historical strength. We are energized by the opportunities we're seeing as the worldwide demand for energy and grid stability increases. ARGN has built a strong reputation as a reliable partner for construction and project management, as well as technology services. And we look forward to continuing to capitalize on the opportunities we're seeing to assist our customers as they transition and upgrade to meet the demands of the evolving energy landscape. To close, we remain focused on our long-term growth strategy. Leverage our core competencies to capitalize on existing and emerging market opportunities. Maintain disciplined risk management with the goal of improving our project management effectiveness and minimizing costly project overruns. Strengthen our position as a partner of choice in the construction of new low and net zero emission power generation facilities as the industry transitions to cleaner energy alternatives while maintaining grid reliability. And lastly, to drive organic growth while also being mindful of acquisition opportunities that make sense for our business through thoughtful capital allocation. I'd like to thank our shareholders for their continued support and our employees for their dedication and hard work in building ARGN to our position as a valued power industry partner. With that, operator, let's open it up for questions.
spk04: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. The first question comes from Rob Brown with Lake Street Capital. Please proceed.
spk00: Good afternoon. Good afternoon,
spk02: Rob. I just want to dig a little bit more into the pipeline of new projects that you've talked about and are working on. How is that developing? Has the sort of some of the stuff with the IRA and other things in the market been sort of improving that? Or how do you sort of see that pipeline moving along at this point?
spk01: Yeah, we're excited about our pipeline and our backlog. We do expect to add some new large projects during the current year and into next, based on our current visibility into our pipeline. We may see a reduction in our reported backlog over the next quarter or two as we convert current backlog into revenue, but ultimately expect to see our backlog meaningfully exceed where we are today. Keep in mind the starts of future project wins are controlled by the customer, which makes it difficult to forecast our backlog given the material size of certain of our projects.
spk02: Okay, great. Thank you. And then on the Roberts Industrial Fab business, it's quite strong and continues to grow nicely. You said there was a couple other projects you won. How would you sort of characterize that trend line in that business? And do you see this sort of revenue level, I think it's 120 million or so, annualized? Is that continued to grow in a new run rate for that business?
spk01: Yeah, I mean, over the past 12 months, TRC has seen their backlog grow 180% to over 150 million. So they have already experienced some tremendous growth. While potential recession could cause certain customers to tighten their belts, I expect TRC to continue to add a diverse set of both smaller and larger projects to their backlog over the course of the year. I'd also like to mention that TRC is located in a region experiencing tremendous growth, which provides really good tailwinds for us. So based on current visibility, I would skew the timing of new TRC projects that are on the larger side towards the later stages of the year. And to your point about their run rate, with the backlog, it does seem to suggest that that is possible to be in that 100 to 230 million range.
spk02: Okay, great. Thank you. And the last question sort of on the margin activity of the quarter, you talked a lot about mix shifting around. On a project level, are you seeing those margins where you expect them or where there's some ins and outs in the quarter that depress the margin?
spk01: Yeah, margins. First and foremost, we're focused on project success. Project success for our customers is the number one way to get repeat business and future growth margins. As I mentioned earlier on the call, the prepared remarks, our margins can fluctuate quarter to quarter related to revenue mix, current project risk profiles, commercial terms and associated margin expectations. But because of this, we tend to look at margins on a longer term basis. And so while we're still early in this current fiscal year and our margin profile will continue to fluctuate, it is reasonable to expect for our full year fiscal 2024 margins to improve and be higher than the 13.7 percent that we just reported in Q1.
spk02: Okay, great. Thank you, David. I'll turn it over.
spk01: Great. Thanks, Rob.
spk04: Okay, the next question comes from Chris Moore with CJS Securities. Chris, please proceed.
spk00: Hey, good afternoon. Thanks for taking a few questions. So maybe a few things on Guernsey. So substantial completion there. What's left to do? Is there any risk left? Is there any additional revenue coming from Guernsey? And finally, is there potential for any additional excess margin there?
spk01: Yeah, there's always a number of items to close out that take time after the primary portions of the job are complete. And it really was a great event earlier this week to see our customer capeness successfully reach commercial operations. So success for them is a success for us. But not only do we need to complete punch list items and close out with our customer, but we have to settle up matters with suppliers, subcontractors, the OEM and other parties that have been involved with the project. And these efforts can take multiple months and in some cases even quarters. So and these are just the natural final steps on any major project such as Guernsey, which is our largest in history. So at the end of the day, we're always committed to delivering the best possible project result each and every time. And there is expected to be additional revenue given that we have we've still got several months to go.
spk00: Got it. And from an excess margin standpoint, likely not anything additional at this point in time or any thoughts there?
spk01: Yeah, the accounting ultimately, we've got a lot of closing out to do. So, you know, based off the current accounting as of 430, the margins are what they currently are. Got
spk00: it. Switch to Trumbull. Understanding it's, you know, kind of a guest minute at this point in time, but just trying to get a sense as to when you might be when you would get to peak there. Is that is that something that could happen later in fiscal 24? Is that more likely a fiscal 25 time frame?
spk01: Yeah, no Trumbull is is off to a good start. It's meeting our expectations as it as it's ramping up. And it's expected to ramp up throughout the year. You know, this one has a has a little bit of a longer timeline and isn't expected to finish till the beginning of 2026. And so peak peak activity, it's always difficult to determine when given supply chain, the cadence of a project and everything else that may or may not be in our control would probably be more of a fiscal year. So, it's a more of a fiscal year, but it's a more of a fiscal year for the next 2025 activity versus during the current fiscal year.
spk00: Got it. And maybe maybe we'll just go back to the gross margin for a second. So in terms of the things that are going to drive the margin from here, obviously, the gem of revenue has better margins than than some of the other businesses. So Trumbull ramping would would be the key one at this point in time. Yeah,
spk01: I mean, you know, back to to to margins and back to to backlog. We really are excited about the number of opportunities that we're looking at. And I realize that you're looking at what margins related to Jimma will be in the current fiscal year with the one major project that's in the house, which is the Trumbull job. But keep in mind, we do have a number of non-disclosed jobs that we're we're we're working on. So Jimma continues to be the core driver for our revenues and for our business. And that shouldn't change this year.
spk00: Got it. And maybe just you've talked about the debt ceiling bill. So within there, they're talking about the Mountain Valley natural gas pipeline to be expedited, just trying to get a sense as to how that might or might not impact our again.
spk01: Yeah, the the permitting reform in the Mountain Valley pipeline or MVP should indirectly be positive for our gain over the long run. The permitting reform should help speed up the development process and the associated costs and should result in gas fired and renewable project EPC opportunities for us. You know, while the permitting reform does not address transmission lines and pipelines, which it really needs to do, the addition of the the Mountain Valley pipeline is positive. There's been certain developers who have announced projects that in the past are located near it in the opportunity for others to be located along the Mountain Valley pipeline path. Makes a whole lot of sense as access to fuel a fuel source with minimal additional pipeline infrastructure is key for for any gas fired power plant development. So I see it as as as a positive for for potential customers down the road.
spk00: Got it. Maybe just one last final one. I'm cash flow. So cash flow generation, if you guys are often you picks up kind of early in the project, sometimes a little excess at the end. How should we think about fiscal 24 versus fiscal 23 and a Q1 certainly is much stronger than than it was negative cash flow from operations. One point two million negative versus almost 40 million. When you look at or think about fiscal 24 cash flow from operations, how do you how do you think about it versus that, you know, that 23 negative 30 million?
spk01: Yeah, that's that's a tremendous question. And our top line cash flow numbers are always difficult to to to model out because they're very much driven by the contractual terms of of our major projects. With the startup Trumbull, the cash flow has been positive. But keep in mind, we're always making significant commitments on behalf of our customers. But as projects progress towards their later stages, costs and cash outflows are typically greater than cash inflows, which is what we experienced in the fiscal 23. So it depends on the timing of new major project starts this year, where we we based off our visibility to expect new jobs over the course of the year and especially towards the later half of the year. And that should result in greater cash balances for our gain overall.
spk00: Got it. All right, I will leave it there. I appreciate it.
spk01: Thanks, Chris.
spk04: We have reached the end of the question and answer session and I will now turn the call over to David Watson for closing remarks.
spk01: Great. Thanks, John. And thank you all for participating in today's call. As a reminder, please vote your shares and come join us at our annual meeting of stockholders this June 20th at our Rockville, Maryland offices just outside our nation's capital. So with that, we look forward to speaking with you again when we report our Q2 fiscal 2024 earnings. Have a great evening.
spk04: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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