Argan Inc. (AGX) 2025 Q2 Earnings Call Summary

Optimistic Highlights

• Revenue Growth

Achieved consolidated revenue growth of 61% to $227 million, the strongest since 2017.

• Profitability

Net income of $18 million or $1.31 per diluted share, and EBITDA of $25 million.

• Segment Performance

Power Services revenue increased by 65%, and Industrial Services revenue increased by 52%.

• Project Backlog

Project backlog exceeded $1 billion, with $570 million in renewable projects.

• Financial Health

Balance sheet reflected $485 million in cash and investments, net liquidity of $260 million, and no debt.

Pessimistic Highlights

• Gross Profit Decline

Gross profit percentage declined from 16.8% to 13.7% due to a change in the mix of projects and contract types.

• Kilroot Project Loss

A $12.8 million loss on the Kilroot project, with ongoing claims exceeding $25 million.

• SG&A Expenses

Selling, general, and administrative expenses increased to $12.4 million from $10.5 million.

• TRC Backlog Concerns

Potential slight dip in TRC backlog over the next quarter or two due to high revenue generation and timing of future project awards.

Company Outlook

• Positive Market Conditions

Strong market conditions for both natural gas and renewable energy projects.

• Future Projects

Expecting multiple gas power plants under contract and generating revenue over the next 5 to 10 months.

• Long-term Strategy

Focused on winning complex design and construction projects, maintaining disciplined risk management, and driving organic growth.

• Financial Stability

Continued strong balance sheet with no debt and significant liquidity.

Q & A Highlights

• Q: Can you talk about the challenges with turbine demand and interconnect agreements? (Chris Moore, from CJS Securities)

  A: Interconnection agreements are a headwind, but developments are moving ahead with behind-the-meter power generating assets. Turbine manufacturers are at full capacity due to global demand, requiring early commitments to secure turbines. (David Watson)

• Q: Is there an optimal backlog level and mix between natural gas and renewables? (Chris Moore, from CJS Securities)

  A: Optimal backlog should be in the multiple billions. Historically, gas-fired power plants are the core, but renewable projects are growing. (David Watson)

• Q: What's the likelihood of starting a large natural gas project in 2025? (Chris Moore, from CJS Securities)

  A: Expecting multiple gas power plants under contract and generating revenue over the next 5 to 10 months. (David Watson)

• Q: Any updates on the Kilroot situation? (Chris Moore, from CJS Securities)

  A: Minimal P&L impact in Q2. Continuing to pursue claims exceeding $25 million. (David Watson)

• Q: Can you give a sense of the TRC business environment and opportunity pipeline? (Rob Brown, from Lake Street Capital)

  A: TRC had a record quarter with strong growth. Positioned well in the Southeast with a strong leadership team. (David Watson)

• Q: Timeline for solar battery projects? (Rob Brown, from Lake Street Capital)

  A: Two projects targeted for completion by the end of this fiscal year, one a little after that. (David Watson)

• Q: Are gas projects seeing delays or progressing as expected? (Rob Brown, from Lake Street Capital)

  A: Projects are progressing as expected, checking off developmental milestones. (David Watson)