Release Date: April 11, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Argan Inc (AGX, Financial) reported a solid fourth-quarter performance, closing out fiscal 2024 with a 26% increase in consolidated revenue to $573.3 million.
- The company's project backlog grew to $757 million sequentially, showing a consistent level of backlog since fiscal 2022 despite significant revenue growth.
- Argan Inc (AGX) ended fiscal 2024 with more than $400 million of cash and investments, net liquidity of $245 million, and no debt.
- During fiscal 2024, Argan Inc (AGX) repurchased approximately 300,000 shares of common stock and increased the quarterly cash dividend by 20% to $0.30 per share.
- The power industry services segment saw a 33% increase in revenues to $119 million for the fourth quarter, and the industrial construction services segment reported revenue growth of 64% and a pretax net income increase of 155% compared to the fourth quarter of fiscal 2023.
Negative Points
- The Kilroot project in Northern Ireland faced significant operational and contractual challenges, resulting in losses of approximately $2.1 million for the fourth quarter and $13.6 million for fiscal 2024.
- The gross profit margin for fiscal 2024 decreased to 14.1% compared to 19% for fiscal 2023, primarily due to the loss recorded on the Kilroot project.
- The effective income tax rate for fiscal 2024 was 33.9%, higher than the previous two years' rates of around 25%, due to the net operating loss incurred by APC in the UK related to the Kilroot project.
- The telecommunications infrastructure services group, being the smallest segment, contributed only 2% of the fourth-quarter revenues.
- The company's actual results, performance, or achievements may differ materially from those expressed or implied by forward-looking statements due to known and unknown factors and risks.
Q & A Highlights
Q: Can you provide further color on the pipeline and the scale of projects coming up?
A: David Watson, CEO of Argan, expressed excitement about the project pipeline, which includes a mix of renewable and gas projects. Two full notices to proceed were received in Q4 for solar battery projects, and they expect additional large projects in the next six-plus months. The new work will be a mix of renewable and gas, primarily in the PJM, MISO, and ERCOT regions. The backlog is expected to meaningfully exceed current levels, with gas jobs remaining large in scale and a number of peaking opportunities also being tracked.
Q: Are you seeing a renaissance in the demand for gas plants?
A: Watson acknowledged a growing demand for power due to AI, EVs, and other electrification efforts, which has caught many by surprise. There is planning for many natural gas power plants in addition to renewable projects, and Argan is well-positioned to take advantage of these opportunities.
Q: What percentage of power generation from natural gas is necessary to meet the growing demand?
A: Watson believes that maintaining 30% to 40% of power generation from natural gas is necessary, even with the growth of renewables, due to the intermittency of renewable sources and the need for natural gas plants to back them up.
Q: Can you provide a number for significant natural gas plants that began construction in the US in 2023?
A: Watson mentioned that the EIA expects about 20 new natural gas-fired power plants to come online in the US around 2024-2025. However, the number of projects starting has been lower than expected due to significant interconnect challenges.
Q: Can Roberts Company sustain its $40 million-plus revenue run rate from Q4?
A: Watson challenged his team to continue their growth, noting that Roberts Company's backlog at year-end was $120 million and has since increased. He expects them to continue adding projects and team members, subject to the economy's performance.
Q: Was there any excess margin from the Guernsey project in Q4's gross margin?
A: Watson confirmed that Guernsey is now in the warranty period and effectively complete. There were improvements in Q4 as items were closed out and risks were reduced or eliminated.
