Press release

Argan, Inc. Reports Year-End and Fourth Quarter Results

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Argan, Inc. (NYSE: AGX) (“Argan” or the “Company”) today
announced financial results for its fiscal year and fourth quarter ended
January 31, 2019. For additional information, please read the Company’s
Annual Report on Form 10-K, which the Company intends to file today with
the U.S. Securities and Exchange Commission (the “SEC”). The Annual
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):

 

January 31,

2019

 

2018

Change

% Change

For the Fiscal Year Ended:
Revenues $ 482,153 $ 892,815 $ (410,662 ) (46 )%
Gross profit 82,438 149,325 (66,887 ) (45 )
Gross margins 17.1 % 16.7 % 0.4 % 2
Net income attributable to the stockholders of the Company $ 52,036 $ 72,011 $ (19,975 ) (28 )
Diluted per share 3.32 4.56 (1.24 ) (27 )
EBITDA attributable to the stockholders of the Company 52,478 116,101 (63,623 ) (55 )
Diluted per share 3.34 7.36 (4.02 ) (55 )
 
As of:
Cash, cash equivalents and short-term investments $ 296,531 $ 434,015 $ (137,484 ) (32 )%
Net liquidity (1) 334,072 301,817 32,255 11
Project backlog 1,094,000 379,000 715,000 189
 
   

(1)

  

We define net liquidity, or working capital, as our total current
assets less our total current liabilities.

 

Fiscal Year 2019 Results:

As the construction activity of Gemma Power Systems (“GPS”) on four
large natural gas-fired power plants wound down and reached completion
during the current year, the Company’s revenues experienced a decline to
$482.2 million compared to $892.8 million in the prior year when the
construction activity on all of these projects was at peak or near-peak
levels. However, partially offsetting the decline at GPS, the Company’s
revenues doubled in aggregate at its other operating units reflecting
the Company’s increased diversity in revenue streams. Gross profit for
the current year was $82.4 million compared with $149.3 million for the
prior year, reflecting primarily the reduction in consolidated revenues
between years. However, the Company’s gross margin percentage increased
to 17.1% for the current year from 16.7% for the prior year.

The levels of selling, general and administrative expenses decreased for
the year ended January 31, 2019 by $1.1 million, or 3%, as compared to
the prior year and other income increased by $1.3 million for the
current year over the prior year. During the current year, the Company
recorded a $1.5 million impairment charge on its goodwill for The
Roberts Company (“TRC”).

The Company completed a year-long detailed review of the work performed
by its engineering staff on major EPC services projects in order to
identify and quantify the amounts of research and development (“R&D”)
credits that may be available to reduce prior year income taxes. Based
on this review, the resulting income tax benefits associated with R&D
activities in the total amount of $16.6 million, or $1.06 per diluted
share, have been recognized in income taxes in the current year. Also,
the Tax Cuts and Jobs Act had a favorable impact on the Company’s income
tax rate, resulting in an effective annual income tax rate of 30%
(before the effects of R&D credits) for the current year, compared to an
effective annual income tax rate of 36% for the prior year.

These factors resulted in net income attributable to our stockholders
decreasing 28% to $52.0 million for the current year, or $3.32 per
diluted share, from $72.0 million, or $4.56 per diluted share, for the
prior year. EBITDA attributable to our stockholders for the year ended
January 31, 2019 decreased 55% to $52.5 million, or $3.34 per diluted
share, from $116.1 million, or $7.36 per diluted share, for the prior
year. The Company paid its fourth regular quarterly cash dividend of
$0.25 per share in January for total dividends paid during the current
year of $1.00 per share.

As of January 31, 2019, our cash, cash equivalents and short-term
investments totaled $297 million and net liquidity was $334 million;
plus, we had no debt. Our project backlog increased $715 million to $1.1
billion as of January 31, 2019, from $379 million at the end of the
prior year, primarily reflecting the addition of two large natural
gas-fired power plant engineering, procurement and construction (“EPC”)
contracts for GPS.

Fourth Quarter Results:

Revenues decreased 48% to $87.7 million, compared to $169.6 million for
the fourth quarter last year which reflected meaningful construction
work on four large gas-fired power plants that were largely completed by
the current year quarter. Gross profit decreased 66% to $6.7 million and
gross margin percentage decreased to 7.7% from 11.9% compared to the
prior year’s fourth quarter, reflecting negative gross profit
adjustments in the current year quarter due to operational and
contractual challenges on two power plant projects.

The other factors contributing to a decreased bottom line between the
fourth quarter of the current year and the prior year’s fourth quarter
were the increased goodwill impairment loss of $0.9 million at TRC,
partially offset by decreased selling, general and administrative
expenses of $1.8 million, reflecting smaller operations, and decreased
taxes of $2.7 million reflecting a lower tax rate and pre-tax losses
during the current fourth quarter. As a result, net (loss) income
attributable to our stockholders for the three months ended January 31,
2019 decreased to $(2.2) million, or $(0.14) per diluted share, compared
to $7.0 million, or $0.45 per diluted share, for the prior year’s fourth
quarter.

Quarterly Dividend:

Yesterday, our Board of Directors declared a regular quarterly cash
dividend in the amount of $0.25 per share of common stock, payable April
30, 2019 to stockholders of record at the close of business on April 22,
2019.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief
Executive Officer, stated, “It has been an eventful year between
reaching final completion on four of our major power plant projects,
entering into three EPC services contracts to build electricity
generation plants having an aggregate power output of approximately 4.0
gigawatts, seeing our project backlog once again exceed a billion
dollars and achieving record revenues at APC and TRC. We are optimistic
that we will receive the go ahead to start construction on several of
these new projects and others over the next couple of quarters and look
forward to a rebound in our revenues later in the year and into the
next. It has taken a lot of hard work and effort to get to this point
and we appreciate the patience our shareholders have shown us.”

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 operational performance of our
power industry services business; (2) the Company’s successful addition
of new contracts to backlog and the Company’s receipt of notices to
proceed with the corresponding contract activities; and (3) the
Company’s ability to execute on 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 described
from time to time in Argan’s filings with the SEC. In addition,
reference is hereby made to the cautionary statements made by us with
respect to risk factors set forth in the Company’s most recent reports
on Form 10-Q and 10-K, and other SEC filings.

 

ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF EARNINGS
(In thousands, except per share
data)

   

Three Months Ended
January 31,

Fiscal Years Ended
January 31,

2019   2018 2019   2018
(Unaudited) (Unaudited)
 
REVENUES $ 87,658 $ 169,578 $ 482,153 $ 892,815
Cost of revenues   80,912     149,474     399,715     743,490  
GROSS PROFIT 6,746 20,104 82,438 149,325
Selling, general and administrative expenses 9,548 11,356 40,710 41,764
Impairment losses   1,491     584     1,491     584  
(LOSS) INCOME FROM OPERATIONS (4,293 ) 8,164 40,237 106,977
Other income, net   1,860     1,427     6,981     5,648  
(LOSS) INCOME BEFORE INCOME TAXES (2,433 ) 9,591 47,218 112,625
Income tax benefit (expense)   142     (2,541 )   4,651     (40,279 )
NET (LOSS) INCOME (2,291 ) 7,050 51,869 72,346
Net (loss) income attributable to non-controlling interests   (84 )   32     (167 )   335  

NET (LOSS) INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN,
INC.

(2,207 ) 7,018 52,036 72,011
 
Foreign currency translation adjustments   596     1,430     (1,768 )   2,184  
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF
ARGAN, INC.

$

(1,611

)

$ 8,448  

$

50,268

  $ 74,195  
 
(LOSS) EARNINGS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF
ARGAN, INC.
Basic $ (0.14 ) $ 0.45   $ 3.34   $ 4.64  
Diluted $ (0.14 ) $ 0.45   $ 3.32   $ 4.56  
 

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING

Basic   15,573     15,559     15,569     15,522  
Diluted   15,573     15,743     15,693     15,780  
 
CASH DIVIDENDS PER SHARE $ 0.25   $ —   $ 1.00   $ 1.00  
 
 

ARGAN, INC. AND SUBSIDIARIES
Reconciliations to
EBITDA
(In thousands)(Unaudited)

 
Three Months Ended January 31,
2019   2018
Net (loss) income $ (2,291 ) $ 7,050
Less EBITDA attributable to noncontrolling interests 84 (32 )
Interest expense — —
Income tax (benefit) expense (142 ) 2,541
Depreciation 957 843
Amortization of purchased intangible assets   253     256  
EBITDA attributable to the stockholders of the Company $ (1,139 ) $ 10,658  
 

Fiscal Years Ended January 31,

2019 2018
Net income $ 51,869 $ 72,346
Less EBITDA attributable to noncontrolling interests 167 (335 )
Interest expense 659 —
Income tax (benefit) expense (4,651 ) 40,279
Depreciation 3,422 2,779
Amortization of purchased intangible assets   1,012     1,032  
EBITDA attributable to the stockholders of the Company $ 52,478   $ 116,101  
 
      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 results of operations presented in accordance with GAAP.
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)

 
As of January 31,
2019   2018
ASSETS
 
CURRENT ASSETS
Cash and cash equivalents $ 164,318 $ 122,107
Short-term investments 132,213 311,908
Accounts receivable, net 36,174 26,287
Contract assets 58,357 13,847
Other current assets   25,286     10,878
TOTAL CURRENT ASSETS 416,348 485,027
Property, plant and equipment, net 19,778 15,299
Goodwill 32,838 34,329
Other purchased intangible assets, net 6,137 7,149
Deferred taxes 1,257 439
Other assets   290     426
TOTAL ASSETS $ 476,648   $ 542,669
 

LIABILITIES AND EQUITY

 

CURRENT LIABILITIES

Accounts payable $ 44,427 $ 100,238
Accrued expenses 29,500 35,360
Contract liabilities   8,349     47,664
TOTAL CURRENT LIABILITIES 82,276 183,262
Deferred taxes   —     1,279
TOTAL LIABILITIES   82,276     184,541
 
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; 15,577,102 and 15,570,952 shares issued at January 31,
2019 and 2018, respectively; 15,573,869 and 15,567,719 shares
outstanding at January 31, 2019 and 2018, respectively

 

2,337

2,336

Additional paid-in capital 144,961 143,215
Retained earnings 247,616 211,112
Accumulated other comprehensive (loss) income   (346 )   1,422
TOTAL STOCKHOLDERS’ EQUITY 394,568 358,085
Non-controlling interests   (196 )   43
TOTAL EQUITY   394,372     358,128
TOTAL LIABILITIES AND EQUITY $ 476,648   $ 542,699