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Argan, Inc. Reports Second Quarter Results

ROCKVILLE, Md.–(BUSINESS WIRE)–Argan, Inc. (NYSE: AGX) (“Argan” or the “Company”) today
announced financial results for its second quarter ended July 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)):

July 31,

2017

2016

Change

% Change

For the Quarter Ended:
Revenues $ 259,803 $ 162,495 $ 97,308 60 %
Gross profit 51,407 44,012 7,395 17
Gross margins 19.8 % 27.1 % (7.3 ) (27 )
Net income attributable to the stockholders of the Company $ 27,139 $ 19,674 $ 7,465 38
Diluted per share 1.72 1.29 0.43 33
EBITDA attributable to the stockholders of the Company 42,712 32,114 10,598 33
Diluted per share 2.71 2.10 0.61 29
For the Six Months Ended:
Revenues $ 490,292 $ 292,843 $ 197,449 67 %
Gross profit 91,503 72,314 19,189 27
Gross margins 18.7 % 24.7 % (6.0 ) (24 )
Net income attributable to the stockholders of the Company $ 47,764 $ 31,904 $ 15,860 50
Diluted per share 3.03 2.09 0.94 45
EBITDA attributable to the stockholders of the Company 75,168 52,271 22,897 44
Diluted per share 4.76 3.43 1.33 39
As of:

July 31,

2017

January 31,
2017

Change

% Change

Cash, cash equivalents and short-term investments $ 557,150 $ 522,994 $ 34,156 7 %
Billings in excess of costs and estimated earnings 190,581 209,241 (18,660 ) (9 )
Backlog 676,000 1,011,000 (335,000 ) (33 )

Second Quarter Results:

Revenues increased to a quarterly record of $260 million, up 60%
compared to the prior year quarter, primarily due to Gemma Power Systems
(GPS) having reached peak construction activities on four large, natural
gas-fired power plants. The power industry services segment continues to
drive our financial results and represents 92% of consolidated revenues
for the quarter ended July 31, 2017. Gross profit increased 17% to $51
million, primarily due to the increased revenues, while gross margin
percentage decreased from 27.1% to 19.8% compared to the prior year
quarter, which primarily reflected the achievement of the substantial
completion of two natural gas-fired power plant projects in the prior
year period.

Selling, general and administrative expenses increased $3.3 million to
$10.8 million, primarily due to increased incentive and stock option
compensation and human capital costs reflective of larger operations,
but decreased as a percentage of revenues to 4.2% from 4.6% in the prior
year quarter. Also in the prior year quarter, Atlantic Projects Company
(APC) recorded an impairment loss on goodwill of $2.0 million,
reflecting the suspension of a major project and other “Brexit” impacts
to its operations in the UK at that time. Net income attributable to
non-controlling interests decreased 95%, or $3.4 million, as activities
on two large power plant projects were completed last year by joint
ventures. These factors and a relatively consistent effective income tax
rate resulted in second quarter net income attributable to our
stockholders increasing 38% to $27.1 million, or $1.72 per diluted
share, compared to $19.7 million, or $1.29 per diluted share, for the
prior year quarter. EBITDA attributable to the stockholders for the
quarter ended July 31, 2017 increased 33% to $42.7 million, or $2.71 per
diluted share, from $32.1 million, or $2.10 per diluted share, for the
prior year quarter.

Six Month Results:

For the six months ended July 31, 2017, consolidated revenues increased
67% to a record $490 million over the prior year period, primarily due
to GPS having ramped up and reached peak construction activities on four
large, natural gas-fired power plants. The power industry services
segment also represented 92% of consolidated revenues for the six months
ended July 31, 2017. Gross profit increased 27% to $92 million,
primarily due to the increased revenues, while gross margin percentage
decreased from 24.7% to 18.7% compared to the prior year period, which
primarily reflected 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 same reasons discussed above, for the six months ended July 31,
2017, selling, general and administrative expenses increased $5.7
million to $20.3 million and net income attributable to non-controlling
interests decreased 95%, or $5.2 million, over the prior year period. In
addition, other income from short-term investments increased $1.9
million from the prior year period due to higher yields and investment
balances. These factors and a relatively consistent effective income tax
rate resulted in net income attributable to our stockholders for the six
months ended July 31, 2017 increasing 50% to $47.8 million, or $3.03 per
diluted share, compared to $31.9 million, or $2.09 per diluted share,
for the prior year period. EBITDA attributable to the stockholders for
the six months ended July 31, 2017 increased 44% to $75.2 million, or
$4.76 per diluted share, from $52.3 million, or $3.43 per diluted share,
for the prior year period.

The Company’s balance sheet continues to strengthen. As of July 31,
2017, cash, cash equivalents and short-term investments totaled $557
million and net liquidity was $288 million. The Company has no bank
debt. The work performed in the quarter reduced the contract backlog.
However, the decrease was partially offset with the addition of the APC
contract for the erection of a 299 MW biomass boiler in Teesside,
England. Contract backlog remained a healthy $0.7 billion as of July 31,
2017.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief
Executive Officer, stated, “On a trailing twelve-month basis, we have
reached $872 million in revenues, $86 million in net income and $134
million in EBITDA. This growth is a direct result of our continued
successful execution on major EPC projects due, in no small part, to the
dedication and determination of our employees. As these projects move
from peak construction to their later stages, we are committed to
maintaining the quality of performance and customer satisfaction while
creating shareholder value, and we remain hard at work in our efforts to
add new projects to the Company backlog.”

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 Ended July 31, Six Months Ended July 31,
2017 2016 2017 2016
REVENUES $259,803 $162,495 $490,292 $292,843
Cost of revenues 208,396 118,483 398,789 220,529
GROSS PROFIT 51,407 44,012 91,503 72,314
Selling, general and administrative expenses 10,799 7,534 20,289 14,581
Impairment loss 1,979 1,979
INCOME FROM OPERATIONS 40,608 34,499 71,214 55,754
Other income, net 1,311 556 2,529 593
INCOME BEFORE INCOME TAXES 41,919 35,055 73,743 56,347
Income tax expense 14,601 11,756 25,676 18,928
NET INCOME 27,318 23,299 48,067 37,419
Net income attributable to non-controlling interests 179 3,625 303 5,515
NET INCOME ATTRIBUTABLE TO
THE STOCKHOLDERS OF ARGAN, INC. 27,139 19,674 47,764 31,904
EARNINGS PER SHARE ATTRIBUTABLE TO
THE STOCKHOLDERS OF ARGAN, INC.
Basic $ 1.75 $ 1.32 $ 3.08 $ 2.14
Diluted $ 1.72 $ 1.29 $ 3.03 $ 2.09
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING
Basic 15,514 14,939 15,491 14,899
Diluted 15,787 15,278 15,788 15,231

ARGAN, INC. AND SUBSIDIARIES

Reconciliations to EBITDA

(In thousands)(Unaudited)

Three Months Ended July 31,
2017 2016
Net income $ 27,318 $ 23,299
Less EBITDA attributable to noncontrolling interests (179 ) (3,625 )
Income tax expense 14,601 11,756
Depreciation 638 484
Amortization of purchased intangible assets 334 200
EBITDA attributable to the stockholders of the Company $ 42,712 $ 32,114
Six Months Ended July 31,
2017 2016
Net income $ 48,067 $ 37,419
Less EBITDA attributable to noncontrolling interests (303 ) (5,515 )
Income tax expense 25,676 18,928
Depreciation 1,210 918
Amortization of purchased intangible assets 518 521
EBITDA attributable to the stockholders of the Company $ 75,168 $ 52,271

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)

July 31,
2017

January 31,
2017

ASSETS

(Unaudited)

CURRENT ASSETS

Cash and cash equivalents $ 153,225 $ 167,198
Short-term investments 403,925 355,796
Accounts receivable 72,517 54,836
Costs and estimated earnings in excess of billings 8,194 3,192
Prepaid expenses and other current assets 4,766 6,927
TOTAL CURRENT ASSETS 642,627 587,949
Property, plant and equipment, net 14,821 13,112
Goodwill 34,913 34,913
Intangible assets, net 7,663 8,181
Deferred taxes 434 241
Other assets 514 92
TOTAL ASSETS $ 700,972 $ 644,488

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Accounts payable $ 131,001 $ 101,944
Accrued expenses 33,116 39,539
Billings in excess of costs and estimated earnings 190,581 209,241
TOTAL CURRENT LIABILITIES 354,698 350,724
Deferred taxes 1,206 1,195
TOTAL LIABILITIES 355,904 351,919
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;

15,541,952 and 15,461,452 shares issued at July 31 and January 31,
2017, respectively; 15,538,719 and 15,458,219 shares outstanding
at July 31 and January 31, 2017, respectively

2,331

2,319

Additional paid-in capital 140,182 135,426
Retained earnings 202,413 154,649
Accumulated other comprehensive income (losses) 131 (762 )
TOTAL STOCKHOLDERS’ EQUITY 345,057 291,632
Noncontrolling interests 11 937
TOTAL EQUITY 345,068 292,569
TOTAL LIABILITIES AND EQUITY $ 700,972 $ 644,488

Contacts

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