Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Argan Inc (AGX, Financial) achieved a 61% increase in consolidated revenues to $227 million for the second fiscal quarter.
- Net income for the quarter was $18 million, or $1.31 per diluted share, marking a significant profitability enhancement.
- The company reported a project backlog exceeding $1 billion, with approximately $570 million in renewable projects.
- Argan Inc (AGX) has a strong balance sheet with $485 million in cash and investments, and no debt.
- The Power Industry Services segment saw a 65% increase in revenues, driven by multiple ongoing projects.
Negative Points
- Gross profit percentage declined from 16.8% to 13.7% due to a change in the mix of projects and contract types.
- Selling, general, and administrative expenses increased to $12.4 million, up from $10.5 million in the prior year period.
- The Telecommunications Infrastructure Services segment remains the smallest, contributing only 2% of second-quarter revenues.
- The company faces challenges with turbine demand outstripping supply and interconnection agreements causing delays.
- The Kilroot project resulted in a $12.8 million loss, with ongoing claims exceeding $25 million.
Q & A Highlights
Q: Can you discuss the challenges related to turbine demand and interconnect agreements for natural gas projects?
A: David Watson, CEO: Interconnection agreements remain a headwind, but many developments are moving ahead with behind-the-meter power generating assets. Turbine manufacturing limitations are also a challenge due to increased global power use. Companies are making early commitments to secure turbines, which helps them move their developments forward.
Q: What is the optimal backlog level for Argan, and what should be the mix between natural gas and renewables?
A: David Watson, CEO: The optimal backlog should be in the multiple billions of dollars. Historically, gas-fired power plants have been our core, but we aim to sustain a significant portion of our business in renewables. Typically, the mix would be over 50% for gas and the remainder for renewables.
Q: What is the likelihood of starting a large natural gas project in 2025?
A: David Watson, CEO: We expect to have multiple gas power plants under contract and generating revenue over the next 5 to 10 months, supported by positive market signals such as the Texas Energy Fund and strong capacity prices in PJM.
Q: Can you provide an update on the Kilroot project situation?
A: David Watson, CEO: The Kilroot project had minimal P&L impact in Q2 as the operational phase concluded. We incurred a $12.8 million loss but are pursuing claims exceeding $25 million.
Q: How is the TRC business performing, and what is the outlook?
A: David Watson, CEO: TRC had a record quarter with nearly $50 million in revenues. While there might be a slight dip in backlog in the short term, TRC is well-positioned for long-term growth, especially in the Southeast region.
Q: What is the timeline for the solar battery projects?
A: Jennifer Belodeau, IMS Investor Relations: Two of the three solar battery projects are targeted for completion by the end of this fiscal year, with the third following shortly after. These projects are relatively quick to complete.
Q: Are the gas projects facing delays, or are they progressing as expected?
A: David Watson, CEO: The gas projects are progressing as expected, meeting all developmental milestones such as securing permits, gas supply, land acquisition, and turbines. We feel confident about multiple projects moving forward in the next 5 to 10 months.
Q: What are the key financial highlights for the second quarter of fiscal 2025?
A: Richard Diely, CFO: Revenues increased 61% to $227 million, with significant contributions from all segments. Net income was $18.2 million, or $1.31 per diluted share, and EBITDA was $24.8 million. The project backlog exceeded $1 billion, with $570 million in renewable projects.
Q: What are the strategic priorities for Argan moving forward?
A: David Watson, CEO: We aim to leverage our core competencies to capitalize on market opportunities, maintain disciplined risk management, strengthen our position in low and net-zero emission projects, and drive organic growth while exploring acquisition opportunities.
Q: How does Argan plan to address the growing energy demand and infrastructure needs?
A: David Watson, CEO: We are well-positioned to support the build-out of reliable power resources, both traditional and renewable. Our expertise in complex power facility projects makes us a valuable partner in meeting the anticipated increase in energy demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
