Argan, Inc. (AGX) Earnings

Management highlights

- Overall Financial Performance * Record Q1 total revenue of $291 million, a 50% increase year-over-year, with a gross margin of 21% (up from 19% YoY) * Net income hit $46.1 million ($3.24 per diluted share), doubling the prior year's $22.6 million ($1.60 per diluted share) * Adjusted EBITDA increased to $56.4 million (19.4% margin), up from $31.5 million (16.3% margin) YoY * Strong balance sheet with $974 million in cash and investments, $421 million in net liquidity, and no outstanding debt - Capital Return Strategy * Current quarterly dividend is 50 cents per share, for an annual run rate of $2 per share, marking the third consecutive year of dividend increases * The share repurchase program was expanded from $150 million to $200 million, with expiration extended to January 31, 2030; $116.7 million has been returned via buybacks since program inception * Management also evaluates complementary M&A opportunities to expand capabilities or geographic footprint - Operational Milestones * Reached substantial completion ahead of schedule on the third and final Midwest Solar and Battery Projects, and achieved final completion on the 915-megawatt Trumbull Energy Center in Ohio * Construction is progressing as planned on four active U.S. gas-fired power projects totaling over 4.1 gigawatts, and two international projects in Ireland * Began construction on an additional industrial fabrication facility in North Carolina to meet growing data center demand, expected to be completed by the end of 2026 - Market Position & Demand Outlook * Broad-based electrification, onshoring of manufacturing, EV adoption, and data center growth have created strong demand for new energy infrastructure, as the existing U.S. grid is under significant strain * Combined-cycle natural gas plants are the leading solution for reliable baseload power, and only a small number of firms (including Argan) can execute these complex projects, creating a favorable competitive environment * Total consolidated backlog decreased slightly to $2.8 billion from $2.9 billion last quarter, a normal fluctuation as projects are completed; the project pipeline remains robust

Guidance

- Management reaffirms prior guidance that Argan will add a handful of new major power projects over the next 10 to 18 months, with no change to this timeline expectation * Argan currently has the capacity to execute 10 to 12 simultaneous projects, and is actively growing team capacity through hiring and training. Management confirms that $2 billion in annual revenue is achievable in the future as the platform grows * Consolidated gross margins are expected to generally stay in the high teens to low 20s, with normal quarter-to-quarter variation based on project mix, execution milestones, and the phase of active projects * The industrial segment is expected to meaningfully exceed its prior year revenue following the expansion of fabrication capacity * Management maintains a disciplined approach to project selection, only pursuing projects that fit its existing capabilities and commitments to support long-term profitability

Segment performance

1. Power segment: Revenue was $227 million, contributing 78% of total consolidated revenue. Pre-tax book income reached $52 million, gross margin was 23.6%, and end-of-quarter backlog was $2.5 billion. This segment achieved strong revenue growth driven by ramp-up of recently awarded construction projects, with early completion milestones on multiple key projects. 2. Industrial segment: Revenue increased to $58 million, contributing 20% of total consolidated revenue. Pre-tax book income was approximately $5 million, gross margin was 11.8%, and end-of-quarter backlog was $225 million. The segment is seeing growing demand, particularly for data center fabrication work. 3. Teledata segment: Revenue was $6 million, contributing 2% of total consolidated revenue. Gross margin was 11%, and end-of-quarter backlog was $8 million.

Risks & headwinds

- Ultimate project margins depend on multiple ongoing execution and market factors, particularly for projects that are still in early phases of construction, so long-term margin visibility is limited * Growing operational and revenue capacity requires incremental hiring and specialized training of field and internal teams, which takes time and limits the speed of near-term capacity expansion * The timing of new major project awards is controlled by third-party developers, who must complete multiple long-lead developmental milestones (permitting, turbine access, financing) before contracts can be finalized

Analyst Q&A

• Q: Can Argan support $2 billion in annual revenue in the next few years, given its current project capacity? /

  A: Argan's current maximum capacity is 10 to 12 concurrent projects, and each individual project now generates higher revenue than in the past due to inflation and market price increases. The company currently has 8 active power projects, and plans to gradually grow capacity through hiring and specialized training. Management confirmed that $2 billion in annual revenue is achievable down the road, but declined to give specific timing for capacity growth.

• Q: What is the competitive dynamic for new projects, and when will new projects be added? /

  A: Only a small number of contractors can execute large gigawatt-scale combined cycle gas projects, so competition for these large opportunities is less intense than for smaller power projects. Management reaffirms that 2-5 new major projects will be added over the next 10 to 18 months, as developers work through required pre-development milestones, and maintains a conservative approach to projecting new awards.

• Q: What drove the strong margin results this quarter, and what should we expect for margins going forward? /

  A: Strong execution and early completion of the Trumbull Energy Center and the final Midwest solar project contributed to this quarter's 21% blended gross margin. While management is encouraged by recent strong margin performance over the last seven quarters, most current major projects are still in early phases with outstanding execution risks, so it is too early to project final ultimate margins. Blended margins are expected to stay in the high teens to low 20s going forward.

• Q: Why did Argan expand its industrial fabrication capacity in North Carolina, and what are the related costs and benefits? /

  A: The new facility is driven by strong multi-year demand for thermal expansion and energy storage tanks for data centers, in addition to the segment's existing fabrication work. Total CapEx for the facility is estimated at $10 million to $13 million, a modest investment for Argan's low-CapEx business model. Located near the existing facility, it will allow the industrial segment to meaningfully grow annual revenue beyond prior year levels, with completion expected by the end of 2026.