Argan Q1 2026 Earnings Call Transcript

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June 4, 2025
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Operator

Good evening, ladies and gentlemen, and welcome to the Argan Inc. Earnings release conference call for the first quarter of fiscal twenty twenty six ended 04/30/2025. 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.

Operator

There is a slide presentation that accompanies today's remarks, 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.

Jennifer Belodeau
SVP at IMS Investor Relations

Thank you. Good evening, and welcome to our conference call to discuss ARGAN's results for the first quarter ended 04/30/2025. On the call today, we have David Watson, Chief Executive Officer and Josh Bacher, 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.

Jennifer Belodeau
SVP at IMS Investor Relations

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 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 Argand's filings with the U. S. Securities and Exchange Commission.

Jennifer Belodeau
SVP at IMS Investor Relations

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 twenty twenty six financial results and filed its corresponding Form 10 Q report with the Securities and Exchange Commission. Alright. With that out of the way, I'll turn the call over to David Watson, CEO of Argan. Please go ahead, David.

David Watson
CEO, President & Director at Argan

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 04/30/2025. Then we'll open up the call for a brief Q and A. We delivered a strong start to fiscal twenty twenty six in the first quarter, with consolidated revenue growth of 23% to $193,700,000 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 $23,000,000 or $1.6 per diluted share, up $1.02 year over year, and EBITDA of $30,300,000 or 15.6% as a percent of revenues.

David Watson
CEO, President & Director at Argan

Additionally, we reported record backlog of $1,900,000,000 as of 04/30/2025. Our backlog reflects our receipt of full notice to proceed on our project with Sando Lakes Energy Company, or FLEC, for a 1.2 gigawatt ultra efficient combined cycle natural gas fired 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 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.

David Watson
CEO, President & Director at Argan

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 546,500,000 of cash and investments, net liquidity of $315,000,000 and no debt at 04/30/2025. Our financial strength and discipline has enabled us to continue to return capital to shareholders. We paid a quarterly dividend of 37.5¢, repurchased or net settled approximately 100,000 shares for approximately 12,900,000.0, and the board increased the size of the share repurchase program to 150,000,000. We're very pleased with the start to fiscal twenty twenty six and remain focused on executing on our ongoing projects while also intent on winning new opportunities.

David Watson
CEO, President & Director at Argan

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.

David Watson
CEO, President & Director at Argan

Power industry services revenues increased 45% to $160,000,000 in the first quarter as compared to $110,000,000 for the first quarter of fiscal twenty twenty five. The segment represented eighty 3% first quarter revenues and reported pretax book income of approximately $31,000,000 Our Industrial Construction Services segment had a solid quarter, although, as we expected, due to the timing of certain projects, revenue decreased to $29,000,000 as compared to revenue of $44,000,000 in the first quarter of fiscal twenty twenty five. Industrial construction services contributed 15% of first quarter consolidated revenues and pretax book income of approximately $2,000,000 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 this segment's capabilities as companies onshore or expand their U. S.

David Watson
CEO, President & Director at Argan

Manufacturing operations. The industrial construction services segment has a large footprint in the Southeast Region of The US, 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 Foister Jr. Stepped down to take a reduced role as part of a long standing 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.

David Watson
CEO, President & Director at Argan

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 20 fourseven 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 seven illustrates the strength and balance of our project backlog, which is comprised of approximately 67% natural gas projects and 28% renewable.

David Watson
CEO, President & Director at Argan

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 $1,900,000,000 at April 30 includes several power plant projects, and we expect to add more this year. During fiscal twenty twenty five, we proactively invested in our workforce and enhanced our teams to prepare for the increased project load and to position Oregon 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.

David Watson
CEO, President & Director at Argan

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 $1,900,000,000 at 04/30/2025, representing backlog growth of 36 from 01/31/2025.

David Watson
CEO, President & Director at Argan

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 fired plants in the current backlog, and we believe the representation of natural gas fired facilities in our backlog will continue to increase in the near to mid term. 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 nine highlights several major projects currently underway or expected to begin shortly. Here you'll see our Trumbull project, a nine fifty megawatt natural gas fire plant in Ohio that is nearing completion, as well as the SLEC one point two gigawatt ultra efficient combined cycle natural gas fire plant in Texas.

David Watson
CEO, President & Director at Argan

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 Station, 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 US, and we recently finished the installation of five ninety megawatt gas turbines, which provide dedicated power to an LNG facility in Louisiana.

David Watson
CEO, President & Director at Argan

In addition, our four zero five 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 twenty twenty five and expect to finish the third during fiscal twenty twenty six. 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.

Joshua Baugher
Joshua Baugher
SVP, CFO & Treasurer at Argan

Thanks, David, and good evening, everyone. On slide 10, we present our consolidated statements of earnings for first quarter fiscal twenty twenty six.

Joshua Baugher
Joshua Baugher
SVP, CFO & Treasurer at Argan

First quarter revenues increased 23% to $193,700,000 primarily reflecting strong revenue growth in our Power Industry Services segment as compared to the first quarter of fiscal twenty twenty five. 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 contribute meaningfully to our quarterly revenues. For the three month period ended 04/30/2025, ARGAN reported consolidated gross profit of approximately $36,900,000 or gross margin of 19%. Consolidated gross profit for the comparative quarter last fiscal year was $17,900,000 representing a gross margin of 11.4%.

Joshua Baugher
Joshua Baugher
SVP, CFO & Treasurer at Argan

The increased gross profit and the improved gross margin for the recently ended quarter reflects 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 2,600,000.0 Gross margins for our Power Industry Services, our Industrial Construction Services, and our Telecommunications Infrastructure Services segments were 20.6%, ten point eight %, and 18%, respectively, for first quarter of fiscal twenty twenty six, as compared to 10.2%, thirteen point three %, and 22.9%, respectively, in the first quarter of fiscal twenty twenty five. Selling, general and administrative expenses of $12,500,000 for the first quarter of fiscal twenty twenty six increased as compared to SG and A of $11,400,000 for the comparable prior year period. But these expenses decreased as a percentage of revenues to 6.5% in the first quarter of fiscal twenty twenty six as compared to 7.2% in last year's first quarter. Net income for the first quarter of fiscal twenty twenty six was $22,600,000 or $1.6 per diluted share, compared to $7,900,000 or $0.58 per diluted share for last year's comparable quarter.

Joshua Baugher
Joshua Baugher
SVP, CFO & Treasurer at Argan

EBITDA, earnings before interest, taxes, depreciation, and amortization, for the quarter ended 04/30/2025 increased to $30,300,000 compared to $11,900,000 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.

David Watson
CEO, President & Director at Argan

Thanks, Josh. We further strengthened our balance sheet during the first quarter. At 04/30/2025, we had approximately $546,000,000 in cash, cash equivalents, and investments generating meaningful investment yields. Our net liquidity was $315,000,000 and we had no debt. Stockholders' equity was $364,000,000 at 04/30/2025.

David Watson
CEO, President & Director at Argan

This liquidity bridge demonstrates that our business model ordinarily requires a low level of capital expenditures. Our net liquidity of $315,000,000 at 04/30/2025, has increased $14,000,000 compared with net liquidity at 01/31/2025. During the first quarter, we returned $18,000,000 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.

David Watson
CEO, President & Director at Argan

Second, the company pays a quarterly dividend, which we increased to 37.5¢ per common share in September 2024, creating an annual dividend run rate of $1.5 per share. Of note, that increase came just a year after we raised our dividend to $0.30 per share in September of twenty twenty three. 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 twenty twenty one, when we began our share buyback program, we have returned a total of approximately $109,400,000 to shareholders. Additionally, in April, our board increased the authorization of the share repurchase program to $150,000,000 And finally, we will continue to evaluate and consider M and A opportunities that could be additive or complementary to our current capabilities or enhance our geographic footprint.

David Watson
CEO, President & Director at Argan

Our company is dedicated to driving long term value creation for shareholders. Our pipeline is stronger than it has ever been, and since 02/2008, 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 twenty four seven 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 renewable energy resources that are necessary to reliably and affordably power the electric economy.

David Watson
CEO, President & Director at Argan

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 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 twenty twenty six 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.

David Watson
CEO, President & Director at Argan

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 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.

Operator

At this time, we will be conducting a question and answer session. First question comes from Rob Brown with Lake Street Capital. Please proceed.

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

Good afternoon. Congratulations on a good quarter.

David Watson
CEO, President & Director at Argan

Thank you.

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

First question on the pipeline visibility at this point, had Sandoz Lakes project awarded. 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?

David Watson
CEO, President & Director at Argan

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 $1,900,000,000 at April 30, we added several jobs during the quarter, including, which 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 $2,000,000,000 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.

David Watson
CEO, President & Director at Argan

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 2,030 gas turbine slots as they are primarily sold out of earlier years.

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

Okay, great. And I think you just said backlog could get significantly over $2,000,000,000 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?

David Watson
CEO, President & Director at Argan

Well, I mean, that's the guidance, right? It's significantly over $2,000,000,000 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 700 megawatt power plant that we announced in December. We just started Tarbert in Sandal Lakes and we're continuing to work on Trumbull job and we expect to add several more to the mix.

David Watson
CEO, President & Director at Argan

So that should absolutely result in a backlog that gets us significantly above $2,000,000,000

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

Okay. Got it. Great. Thanks. And then on the Industrial business, I think this quarter was sort of bottoming.

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

What's the outlook there? How does the pipeline look? And what's the trend on revenue in that segment?

David Watson
CEO, President & Director at Argan

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.

David Watson
CEO, President & Director at Argan

TRS backlog increased to $91,000,000 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.

Rob Brown
Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC

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

Operator

The next question comes from Chris Moore with CJS Securities. Please proceed.

Christopher Moore
Senior Analyst at CJS Securities

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

David Watson
CEO, President & Director at Argan

It's another Chris, 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, 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.

Christopher Moore
Senior Analyst at CJS Securities

All right. Fair enough. Maybe a follow-up on one of Rob's questions. So from a backlog perspective, 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?

David Watson
CEO, President & Director at Argan

As you know, our backlog bounces around some given that overnight, we could add a $600,000,000 7 hundred million dollars 5 hundred million dollars 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 mid term but frankly for the long term and multiple years out.

Christopher Moore
Senior Analyst at CJS Securities

Got it. In terms of just, you know, kind of what gets going first, is even though send out was booked later, is that likely to escalate a little bit quicker in in fiscal twenty six? All all of

David Watson
CEO, President & Director at Argan

ahead, Chris.

Christopher Moore
Senior Analyst at CJS Securities

No. No. Go ahead.

David Watson
CEO, President & Director at Argan

I mean, 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. We do expect revenues to increase overall revenues to increase from Q1 over the course of the year.

Christopher Moore
Senior Analyst at CJS Securities

Got it. And maybe my last question to follow-up on that. So I mean historically, the timeframe was two point five to three years. Now we talk more like three to four years. Is that a permanent change?

Christopher Moore
Senior Analyst at CJS Securities

Is that regulatory? Is that supply chain driven? Or is it fair to assume that it's not going back, it's going to stay in that range?

David Watson
CEO, President & Director at Argan

I'd like to say it's a little bit of all of the above, but I think it's primarily supply chain driven. At the end of the day, if that gets straightened out, there is obviously, there will be a goal of speed to market for our customers. And so, we clearly want to be able to build these things quicker and timely, 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.

Christopher Moore
Senior Analyst at CJS Securities

Fair enough. Appreciate it. I will leave it there.

David Watson
CEO, President & Director at Argan

Great. Thanks, Chris.

Operator

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.

David Watson
CEO, President & Director at Argan

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 17. 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 twenty twenty six results. Have a great evening, everyone.

Operator

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

Executives
    • Joshua Baugher
      Joshua Baugher
      SVP, CFO & Treasurer
Analysts
    • Jennifer Belodeau
      SVP at IMS Investor Relations
    • David Watson
      CEO, President & Director at Argan
    • Rob Brown
      Founding Partner & Senior Research Analyst at Lake Street Capital Markets, LLC
    • Christopher Moore
      Senior Analyst at CJS Securities
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Key Takeaways

  • First quarter consolidated revenues grew 23% year-over-year to $193.7 million, with gross margin improving to 19%, net income of $23 million ($1.60 per diluted share), and EBITDA of $30.3 million (15.6% of revenue).
  • Argan reported a record project backlog of $1.9 billion as of April 30, up 36% sequentially, including full notice to proceed on a 1.2 GW ultra-efficient combined cycle plant in Texas and visibility to exceed $2 billion this year.
  • Power Industry Services led segment growth with revenues up 45% to $160 million; Industrial Construction Services saw a temporary Q1 revenue dip to $29 million but has a solid Southeast footprint and increasing project visibility, while Telecom Infrastructure contributed 2% of revenues.
  • Balance sheet strength is highlighted by $546 million in cash and investments, net liquidity of $315 million, zero debt, a quarterly dividend increased to $0.375, and an expanded $150 million share repurchase authorization.
  • Management notes rising power demand from AI data centers, onshoring, and EV charging amid aging gas infrastructure, positioning Argan’s combined cycle and renewable capabilities for sustained long-term growth.
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Earnings Conference Call
Argan Q1 2026
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