Argan, Inc.

Good evening, ladies and gentlemen, and welcome to the Argon Inc. Earnings Release Conference call for the first quarter of fiscal 2026, ended April 30, 2025. This call is being recorded. All participants have been placed on a listen-only mode. Following management's remarks, the call will be opened 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, Jennifer Belladeau of IMS Investor Relations. Please go ahead, ma'am.

Thank you. Good evening, and welcome to our conference call to discuss Argan's results for the first quarter ended April 30, 2025. On the call today, we have David Watson, Chief Executive Officer, and Josh Bakker, Chief Financial Officer. I'll take a moment to read the Safe Harbor statements. Statements made during this conference call and presented in the presentation that are not 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 a 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 some of the factors and risks that could cause or contribute to such material differences have been described in this afternoon's press release and in Argan's filings with the U.S. Securities and Exchange Commission. These statements are based on information and understandings that are believed to be accurate as of today, and we do not undertake any duty to update such forward-looking statements. Earlier this afternoon, the company issued a press release announcing its first quarter fiscal 2026 financial results and filed its corresponding Form 10Q report with the Securities and Exchange Commission. All right, with that out of the way, I'll turn the call over to David Watson, CEO of Argan. Please go ahead, David.

Thanks, Jennifer, and thank you, everyone, for joining today. I'll start by reviewing some of the highlights of our operations and activities, and Josh Bacher, our CFO, will go over our financial results for the first quarter ended April 30, 2025. Then we'll open up the call for a brief Q&A. We delivered a strong start to fiscal 2026 in the first quarter with consolidated revenue growth of 23%, to $193.7 million and gross margin of 19%, led by continued momentum in our power industry services segment. We also achieved enhanced profitability as demonstrated by net income of approximately $23 million, or $1.60 per diluted share, up $1.02 year over year, in EBITDA of $30.3 million, or 15.6%, as a percent of revenues. Additionally, we reported record backlog of $1.9 billion as of April 30, 2025. Our backlog reflects our receipt of full notice to proceed on our project with Sando Lakes Energy Company, or SLEC, for a 1.2 gigawatt ultra-efficient combined cycle natural gas fire plant in Texas. Our project pipeline is robust and reflects both the need for new energy resources as a large portion of natural gas fire plants reach the end of operational life and the urgency around building new infrastructure to meet the unprecedented growth in power consumption. Power demand has reached its highest level in two decades and is expected to increase further with the development of AI data centers, the onshoring of complex manufacturing, and the growing adoption of electric vehicles that need charging. Today's energy demand environment has created a substantial pipeline of project opportunities and we are seeing heightened demand for our expertise and capabilities, particularly as they relate to the construction of complex combined cycle natural gas facilities. We're energized about the demand environment, which we believe will present attractive project opportunities for the next decade and beyond. Our balance sheet remains strong with $546.5 million of cash and investments, net liquidity of $315 million, and no debt, at April 30, 2025. Our financial strength and discipline has enabled us to continue to return capital to shareholders. We paid a quarterly dividend of 37.5 cents, repurchased or net settled approximately 100,000 shares for approximately 12.9 million, and the board increased the size of the share repurchase program to 150 million. We're very pleased with the start to fiscal 2026. and remain focused on executing on our ongoing projects while also intent on winning new opportunities. Now on to the operational review. Slides four and five present our three reportable business segments. As most of you know, our power industry services segment focuses on the construction of multiple types of power facilities, including efficient gas-fired power plants, solar energy fields, biomass facilities, and battery energy storage systems in the U.S., the U.K., and in Ireland. Power industry services revenues increased 45% to $160 million in the first quarter as compared to $110 million for the first quarter of fiscal 2025. The segment represented 83% first quarter revenues and reported pre-tax book income of approximately $31 million. Our industrial construction services segment had a solid quarter Although, as we expected, due to the timing of certain projects, revenue decreased to $29 million as compared to revenue of $44 million in the first quarter of fiscal 2025. Industrial construction services contributed 15% of first quarter consolidated revenues and pre-tax book income of approximately $2 million. This segment primarily provides solutions for industrial construction projects with a concentration in agriculture, petrochemical, pulp and paper, water, and power. There is solid demand for the segment's capabilities as companies onshore or expand their U.S. manufacturing operations. The industrial construction services segment has a large footprint in the southeast region of the U.S., so they are well-situated in a high-growth region for their focus industries. One last comment on the industrial segment. I want to take a moment to congratulate Sean Terrell, who has served as president of TRC since 2023. as he was recently appointed to the additional role of Chief Executive Officer. This change came as Bobby Foyster, Jr. stepped down to take a reduced role as part of a longstanding succession plan. We thank Bobby for his many contributions to TRC's growth and progress, as well as for building a culture of operational excellence and teamwork at TRC. Finally, we have our Telecommunications Infrastructure Services Group, our smallest segment, which contributed 2% of first quarter revenues. The telecommunications segment provides outside construction services for the utility and telecommunications sectors, as well as inside-the-premises wiring services primarily for federal government locations and military installations requiring high-level security clearance. We continue to see growing attention around the increase in energy demand driven by the widespread electrification of virtually every sector of the economy. For the first time in decades, this rising demand is coinciding with the aging and retirement of a substantial portion of the nation's natural gas infrastructure. AI data centers, complex manufacturing operations, and EV charging all require a reliable, high-quality 24-7 power supply. Looking at the composition of the current pipeline, the industry has adopted the approach that the most effective path to ensuring stable grids and reliable power generation is through a combination of traditional gas fire plants as well as renewables, and we build them all. With our energy agnostic capabilities and proven track record of success with combined cycle and simple cycle natural gas facilities, as well as solar, biofuel, and other renewable energy resources, we believe we are favorably positioned as we compete to win the construction of large and complex power facilities. Slide 7 illustrates the strength and balance of our project backlog, which is comprised of approximately 67% natural gas projects and 28% renewable, as the grid faces mounting pressure the energy industry is turning to a combination of natural gas and renewable energy resources to ensure reliability. Given the aging natural gas infrastructure, we expect to see heightened demand for gas-fired and other thermal power plants for several years to come as the industry seeks to increase the number of reliable and high-quality power sources. Our backlog of $1.9 billion at April 30 includes several power plant projects, and we expect to add more this year. During fiscal 2025, we proactively invested in our workforce and enhanced our teams to prepare for the increased project load and to position Argan to continue to deliver excellent on-time execution for our customers as we support the electric economy. We're excited about the demand we're seeing for our services, particularly for the construction of traditional combined cycle natural gas power plants. Argan is one of only a few companies who have the capability to successfully execute those complex projects, and we have a track record that validates our reputation as a proven industry partner. We remain disciplined in our commitment to achieving the best outcomes for the projects we take on and believe our expertise, seasoned team, and history of on-time and on-budget project delivery positions us for continued backlog growth and financial strength. Turning to slide eight, Our consolidated project backlog was $1.9 billion at April 30, 2025, representing backlog growth of 36% from January 31, 2025. Our current backlog includes fully committed projects in both the power, industry services, and industrial construction services segments. We have a growing portion of traditional gas fire plants in the current backlog, and we believe the representation of natural gas fire facilities in our backlog will continue to increase in the near to midterm. We plan to maintain our presence in the renewable business, but our natural gas projects will be the core of our growth engine for the foreseeable future. Slide 9 highlights several major projects currently underway or expected to begin shortly. Here you'll see our Trumbull project, a 950 megawatt natural gas fire plant in Ohio that is nearing completion, as well as the SLEC 1.2 gigawatt ultra-efficient combined cycle natural gas fire plant in Texas. As I mentioned a bit earlier on the call, during the first quarter we received full notice to proceed on the SLEC project, and we expect to begin construction this summer. When completed, the facility will be capable of supplying approximately 800,000 homes within the ERCOT grid. Also highlighted here is the Tarbert Next Generation Power Stations. a 300-megawatt biofuel plant in Ireland for SSE thermal. The project kicked off earlier in the first quarter and is at a site we are familiar with and have performed work at in the past. Construction is also underway on an approximately 700-megawatt combined cycle natural gas fire plant located here in the U.S., and we recently finished the installation of five 90-megawatt gas turbines, which provide dedicated power to an LNG facility in Louisiana. In addition, our 405-megawatt utility-scale solar project in Illinois continues to make good progress, and we completed two of the three Solar Plus battery projects in Illinois during fiscal 2025 and expect to finish the third during fiscal 2026. Finally, you'll see two separate water treatment plant projects being performed by our industrial construction services segment. While we've spoken a lot about the industry's demand for natural gas projects, you'll see that our backlog reflects a broad range of capabilities in our diverse project mix. With that, I'll turn the call over to Josh Bacher to take us through the first quarter financials. Go ahead, Josh.

Thanks, David, and good evening, everyone. On slide 10, we present our consolidated statements of earnings for first quarter fiscal 2026. First quarter revenues increased 23% to $193.7 million. primarily reflecting strong revenue growth in our power industry services segment as compared to the first quarter of fiscal 2025. The growth in our project count and backlog has resulted in increased project activity and revenue compared to the same quarter last year. In the first quarter, several newly awarded gas-fired power plant projects were in the early stages, while our more advanced projects saw continued activity and contributed meaningfully to our quarterly revenues. For the three-month period ended April 30, 2025, Argonne reported consolidated gross profit of approximately $36.9 million, or gross margin of 19%. Consolidated gross profit for the comparative quarter last fiscal year was $17.9 million, representing a gross margin of 11.4%. The increased gross profit and the improved gross margin for the recently ended quarter reflect the changing mix of projects and contract types. In addition, the first quarter in the prior fiscal year was negatively impacted by a loss recorded on an overseas project, which reduced gross profit by approximately $2.6 million. Gross margins for our power industry services, our industrial construction services, and our telecommunications infrastructure services segments were 20.6%, 10.8%, and 18%, respectively, for first quarter of fiscal 2026, as compared to 10.2%, 13.3%, and 22.9%, respectively, in the first quarter of fiscal 2025. Selling general and administrative expenses of $12.5 million for the first quarter of fiscal 2026 increased as compared to SG&A of $11.4 million for the comparable prior year period, but these expenses decreased as a percentage of revenues to 6.5% in the first quarter of fiscal 2026 as compared to 7.2% in last year's first quarter. Net income for the first quarter of fiscal 2026 was $22.6 million, or $1.60 per diluted share, compared to $7.9 million, or $0.58 per diluted share, for last year's comparable quarter. EBITDA, earnings before interest, taxes, depreciation, and amortization for the quarter ended April 30, 2025, increased to $30.3 million, compared to $11.9 million for the same period last year. EBITDA as a percent of revenue increased to 15.6% for the first quarter of this fiscal year, compared to 7.5% for the first quarter of last fiscal year. With that, I'll turn the call back to David.

Thanks, Josh. We further strengthened our balance sheet during the first quarter. At April 30, 2025, we had approximately $546 million in cash, cash equivalents and investments generating meaningful investment yields. Our net liquidity was $315 million, and we had no debt. Stockholders' equity was $364 million at April 30, 2025. This liquidity bridge demonstrates that our business model ordinarily requires low-level capital expenditures. Our net liquidity of $315 million at April 30, 2025, has increased 14 million compared with net liquidity at January 31st, 2025. During the first quarter, we returned 18 million of capital to our shareholders. We have a disciplined capital allocation strategy which focuses on our core commitments. First, we invest in our people to ensure we are appropriately prepared to staff and execute our projects. Second, The company pays a quarterly dividend, which we increased to 37.5 cents per common share in September 2024, creating an annual dividend run rate of $1.50 per share. Of note, that increase came just a year after we raised our dividend to 30 cents per share in September of 2023. Together, these two increases represent an aggregate 50% increase in our annual dividend run rate in less than two years. reflecting the strength of our business. Third, since November of 2021, when we began our share buyback program, we have returned a total of approximately 109.4 million to shareholders. Additionally, in April, our board increased the authorization of the share repurchase program to 150 million. And finally, we will continue to evaluate and consider M&A opportunities that could be additive or complementary to our current capabilities or enhance our geographic footprint. Our company is dedicated to driving long-term value creation for shareholders. Our pipeline is stronger than it has ever been, and since 2008, we have increased our tangible book value and cumulative dividends per share to record levels. Our industry is seeing heightened urgency to meet power consumption increases that haven't been experienced in decades. This increased power demand coinciding with aging power resources and a decade-long underinvestment in energy infrastructure is driving an immediate need for facilities that can provide reliable 24-7 power. Argonne is one of only a few companies with the capabilities to construct both the complex combined and simple cycle natural gas plants as well as the renewable energy resources that are necessary to reliably and affordably power the electric economy. We believe we are well positioned with the capabilities, financial flexibility, industry relationships, and long-standing customer base to strengthen our leadership role as a partner of choice for the build-out of energy infrastructure. To close, we remain focused on our long-term growth strategy, leverage our core competencies to capitalize on 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 power generation facilities that power the electric economy and maintain grid reliability. And last but not least, drive organic growth while also being alert for acquisition opportunities that make sense for our business through thoughtful capital allocation. Fiscal 2026 is off to a strong start, and we are energized to execute on our record backlog and to win more opportunities from our robust project pipeline. As you know, combined cycle projects typically take three to four years to complete, and we are in the early days of the current power facility build-out With our visibility of the pipeline of projects coming to market, we remain very optimistic about our continued growth through this decade and beyond as we remain fully engaged to build the energy infrastructure needed to reliably supply the electrification of everything. As always, I'd like to thank our employees for their dedication to operational excellence and to thank our shareholders for their continued support. With that, operator, let's open it up for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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. Once again, please press star 1 if you have a question or comment. First question comes from Rob Brown with Lake Street Capital. Please proceed.

Good afternoon. Congratulations on a good quarter. Thank you. His first question on the pipeline visibility at this point, you have the Sandow Lake project awarded. What's sort of the pipeline look like for the rest of the year? And could you give some color on kind of the size and potential there?

Sure, Rob. The pipeline remains strong and we're very bullish on being able to continue to add to the backlog. Currently, as you can see from our record backlog of $1.9 billion at April 30, we added several jobs during the quarter, including what you just mentioned, the Sandal Lakes job. But in the short to medium term, we expect to add several power industrial jobs over the course of the next six months, which should put us significantly over $2 billion in backlog later this year. But as you know, it's important to reemphasize that we often don't control the start times in new projects, so it's tough for us to give an exact estimate. But in the long term, we believe demand will remain strong for the next decade and beyond. And this is underscored by the fact that the OEMs are starting to fill 2030 gas turbine slots as they are primarily sold out of earlier years.

Great.

And I think you just said backlog could get significantly over $2 billion. What's sort of the kind of potential that backlog can get to given your capacity and given sort of what you see in the project pipeline? Is there a sense of how much backlog can get to?

Well, I mean, that's the guidance, right? It's significantly over $2 billion. As you know, we have project capacity in that 10-plus range between renewable and gas jobs. And so we've just started several new jobs, right? We just started a 700-megawatt power plant that we announced in December. We just started Tarbert in Sandal Lakes, and we're continuing to work on the Trumbull job, and we expect to add several more to the mix. So that should absolutely result in a backlog that gets us significantly above $2 billion.

Okay, got it. Great. Thanks. And then on the industrial business, I think this quarter we're sort of bottoming. What's the outlook there? How does the pipeline look? And what's the trend on revenue in that segment?

Absolutely. You're right. As we previously discussed, we expected a slight contraction in this past quarter, which there was, but we're still seeing strong interest in TRC with increased onshoring of U.S. manufacturing being a major contributor. TRS backlog increased at 91 million, and our confidence in this segment is really strong. Based on current visibility, Rob, we expect revenues to increase meaningfully over the next several quarters.

Great. Thank you. I'll turn it over.

Once again, if you have a question or a comment, please indicate so by pressing star 1 on your touchtone phone. The next question comes from Chris Moore with CJS Securities. Please proceed.

Hey, good afternoon. Thanks for taking a couple. Maybe we could start with gross margins. They've been above expectations the last two quarters, 19% in Q1. Can you quantify or even estimate the amount of excess margin in there from projects like Trumbull?

You know, it's another, Chris, so great to hear from you. It's another great, solid gross profit quarter. And as you mentioned, the second one in a row. They basically reflect continued strong execution across the business as well as the continued changing mix of projects and contract types. I think, you know, we're in a competitive but good market right now, and we expect to exceed last year's margin profile as we move through the year. So it's expected to be pretty strong.

All right, fair enough. Maybe a follow-up on one of Rob's questions. So I think from a backlog perspective here, Given there's a finite ability in terms of how many jobs you can do, is there an optimal backlog level if most of it is natural gas?

As you know, our backlog bounces around some given that overnight we could add a $600 million, $700 million, $500 million contract, right? And of course... as we continue to execute on these jobs, revenue gets burned off and backlog gets burned off. So we expect, again, the trajectory of backlog to increase over the course of the year, though it could bounce around some. And we're really excited about the market we're in right now, the opportunities that we're seeing, not just for the near and midterm, but frankly for the long term and multiple years out.

Got it. In terms of just kind of what gets going first, even though Sandow was booked later, is that likely to escalate a little bit quicker in fiscal 26?

All of our gas jobs... are over a three to four year period in it. And as the cadence of the job, it takes time for revenues to ramp up. I mean, we obviously want to achieve successful jobs for our customers, and we will push to get as much done as soon as we can on each and every project. But the revenue cadence of a lot of these new jobs and expected additional jobs do take time to ramp up. And we do expect, you know, revenues to increase, overall revenues to increase from Q1 over the course of the year.

Got it. And maybe my last question to follow up on that. So, I mean, historically, the time frame was two and a half to three years. Now we talk more like three to four years. Is that a permanent change? You know, is that regulatory? Is that supply chain driven? Or is it fair to assume that that You know, it's not going back. It's going to stay in that range.

I'd like to say it's a little bit of all the above, but I think it's primarily supply chain driven at the end of the day. You know, if that gets straightened out, there is obviously there will be a goal of speed the market for our customers. And so we clearly want to be able to build these things quicker and timely and And that's what we continue to do. But it is currently a three to four year timeline typically, though smaller jobs could be shorter.

Fair enough. I appreciate it. I will leave it there. Great. Thanks, Chris.

We've reached the end of the question and answer session. And I will now turn the call over to David Watson for closing remarks.

Thank you all for participating in today's call. And as a reminder, please don't forget to vote your shares for our upcoming annual meeting of stockholders on June 17th. And I look forward to seeing some folks there. As always, we look forward to speaking with you again when we report our second quarter fiscal 2026 results. Have a great evening, everyone.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.