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| Statement |
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| It was a really strong quarter across the business with the exception of Kilroot, which is no excuse |
| Our balance sheet remained strong as of October 31, 2023, cash, cash equivalents and investments totaled almost $400 million, generating meaningful investment yields, and net liquidity was $240 million with no debt |
| We delivered solid profitability outside the Kilroot job, which I will cover later in detail, and we saw continued strength in our balance sheet |
| So we feel like we've got a really strong team in place for growth over the long run |
| We were also pleased to increase our cash dividend payout 20% to $0.30 per quarter, reflecting our confidence in our businesses |
| Argan has earned a solid reputation as a proven design and construction partner for the power industry and we are energized by the pipeline of opportunities we're seeing to work with both new and repeat customers as they build facilities designed to provide cleaner energy sources to meet growing power consumption practices |
| Industrial Construction Services, which is represented by the Roberts Company, had a strong quarter and contributed 23.5% of our third quarter consolidated revenues and a reported pre-tax book income of $2.9 million |
| With our capabilities and proven track record as a full service construction and project management partner for multiple types of power facilities, we are seeing heightened interest for our services and our pipeline is strong |
| While our ability to drive substantial growth and revenues for the third quarter shows the underlying strength of our core businesses |
| We're excited about the opportunities we're seeing to help the energy industry as it transitions to meeting this increased demand through the establishment of both low emissions and renewable sources of power |
| Excluding Kilroot, execution has generally been strong across all the businesses during the third quarter and we remain committed to driving execution excellence and strong margin performance |
| Importantly, we continue to see tremendous opportunity for Argan moving forward as the energy landscape continues its transitions from fossil fuel to cleaner alternatives like natural gas and renewables |
| Importantly, our facility, design and construction capabilities are energy agnostic, positioning Argan as an ideal partner as demand for reliable power grids and enhanced emergency power resources is growing |
| During the third quarter, we saw revenues grow by 39% to $164 million, reflecting improvements from both our power industry services and our industrial construction services businesses |
| So again, before I hand the call over to Hank Deily to go over our financial performance in detail, I want to reiterate that while the latest developments with the Kilroot project are disappointing, we are generally seeing strong execution on all of our other major projects, and we remain optimistic that our results over the long-term will be strong |
| This project demonstrates our ability to execute a major project on an extremely short timeline |
| But I do want to point out, we added without a major new job, $70 million of miscellaneous backlog during the quarter, which offset a lot of the $164 million a backlog that we converted to revenues, which demonstrates the benefits of an increasingly diversified organization |
| We are working hard to mitigate risk and complete the Kilroot project early in calendar 2024, and our execution remains solid across our other projects, including the full closeouts of both Guernsey and Maple Hill, which is expected in the fourth quarter |
| While this is a decline from the backlog level of $0.8 billion we maintained through the first-half of fiscal 2024, we continue to see a strong pipeline of opportunities and our backlog continues to reflect longer-term, fully committed projects in both the power industry and industrial services segments |
| I mean our backlog stayed strong, and we do believe our pipeline is as well |
| Our backlog remains very healthy with a variety of projects that demonstrate the range of our capabilities and our recognition in the power industry as the effective industry partner, not only in the U.S., but also in Ireland and the U.K |
| 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 |
| In our industrial construction services segment, the company achieved revenue growth of 74% driven by a substantial increase in field services and supporting steel fabrication work |
| For the three months ended October 31, 2023, Argan reported consolidated gross profit of approximately $19.2 million, which represented a gross profit percentage of approximately 11.7% and reflected positive contributions from all three reportable business segments |
| Importantly, as I mentioned at the start of this call, in September, Argan's board increased the company's quarterly dividend by 20%, from $0.25 to $0.30 per share, reflecting the strength of our business and our confidence in Argan's growth potential moving forward |
| This is an exciting and substantial opportunity for us to continue to demonstrate our capabilities in the renewable energy space supporting the adoption of solar power as a reliable energy source |
| Maintain disciplined risk management with the goal of improving our project management effectiveness and minimizing costly project overruns |
| Roberts has been a long process for me, for my years here at Argan and I've just been really pleased to see where we are today on it |
| Turning to slide 11, our consolidated project backlog remains solid at over $0.7 billion as of October 31, 2023 |
| In the third quarter, we achieved a 34% increase in revenues in our power industry services segment, primarily related to projects under construction overseas and the Trumbull Energy Center, partially offset by decreased revenues associated with the Guernsey Power Station and the Maple Hill Solar Facility as those projects reach the final completion stage |
| Statement |
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| However, these results were adversely impacted by the recorded loss of $10.7 million related to the Kilroot project, an amount representing approximately 6.5% of consolidated revenues for the quarter |
| During the third quarter our international subsidiary APC encountered significant and escalating operational and contractional challenges associated with the Kilroot project in Northern Ireland |
| Last quarter, we discussed the challenges that have impacted our ability to execute, as expected, on the Kilroot project, including weather-related work interruptions, COVID variants highlighting the workforce, material changes to the project, the war in Ukraine, and global supply chain delays, among others |
| In addition, unresolved variances and claims have disrupted our progress, and unresolved project-related matters continue to meaningfully impact the contract, our cost, and the project schedule negatively |
| That said, as David previously mentioned, APC has been contending with significant and escalating operational and contractual challenges associated with the Kilroot Power Station project in Northern Ireland |
| Our consolidated gross profit of 14% for the first nine months of fiscal 2024 decreased, as compared to gross margin of 19.7% in the first nine months of fiscal 2023, primarily due to $11.5 million of loss that was recorded in the first nine months of 2024 related to the Kilroot project |
| As October 31, 2023, APC's estimates of the unfavorable financial impacts related to the difficulties on the Kilroot project escalated substantially |
| It's -- there's just been a lot of changes in the scope of this project that have just been difficult for us |
| Most notably, these consolidated results were tempered by the reduction in consolidated gross profit between periods related to the loss recorded on the Kilroot contract as discussed earlier |
| As an organization, we are intently focused on efficient execution and project success, and the impact of the unanticipated challenges that have resulted in the Kilroot loss is extremely disappointing to us, as we know it is to our fellow shareholders |
| We do expect reduced revenues next fiscal year as we kind of solidify the business and modify our risk profile for market conditions now and into the future |
| Our income tax reporting for the periods ended October 31, 2023 is also negatively impacted by the Kilroot loss as we did not apply any income tax benefit to the resulting net operating loss incurred by APC in the U.K |
| is expected to drop by an additional 70% to represent only 5% of net electrical generation by 2050, while the demand for stable grids and reliable power generation will only continue to grow |
| But as I've said before, you got to 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 projects and thermal jobs always take longer than we would like, but giving you a development job -- getting into about job to the finish is not easy |
| Net income for the third quarter of fiscal 2024, as adversely affected by the Kilroot loss, was $5.5 million, or $0.40 per diluted share, compared to $7.8 million, or $0.56 per diluted share for last year's comparable quarter |
| you had, for a while, have been talking about that being a difficult project is in the Q2, I think you estimated it was about 80% done |
| And that just really kind of came to more of ahead here during Q3 as well as you get super close to the end of the job, things -- that's -- there are a lot of risk at the end of the job, as you know, with any of our jobs that we do |
| The loss recorded for the three-month period ended October 31, 2023, and the amount of approximately $10.7 million includes an unfavorable adjustment of estimated gross profit of approximately $2.8 million that was recorded in previous periods |
| I guess the question is sort of how certain are you at this point that the charges you've taken are kind of it? Or how much is left to kind of go? And how much is uncertain at this point? David Watson Yes, Rob, we're doing everything we can to mitigate these losses we have a challenging customer on a challenging project at the end of the day |
| The increased revenues were partially offset by the effects of decreased activities at the Guernsey Power Station and the Maple Hill Solar Energy facility as those EPC projects wind down |
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