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Argan, Inc. Reports Strong Second Quarter Earnings

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Argan, Inc. (NYSE:AGX) today announced financial results for the three and six months ended July 31, 2014.

For the quarter ended July 31, 2014, revenues were $102.0 million compared to $57.9 million for the quarter ended July 31, 2013. Gemma Power Systems LLC and affiliates (Gemma) contributed $100.4 million, or 98% of revenues in the second quarter of fiscal 2015, compared to $55.5 million, or 96% of revenues in the second quarter of fiscal 2014.

For the six months ended July 31, 2014, revenues were $153.2 million compared to $104.5 million during the six months ended July 31, 2013. Gemma contributed $150.2 million, or 98% of revenues in the first six months of fiscal 2015, compared to $99.3 million, or 95% of revenues in the first six months of fiscal 2014.

Argan reported consolidated EBITDA (Earnings before interest, taxes, depreciation and amortization) attributable to the stockholders of Argan, Inc. of $13.9 million for the quarter ended July 31, 2014 compared to $20.2 million for the same prior year period. Gemma recorded $15.1 million in EBITDA attributable to stockholders of Argan, Inc. for the second quarter of fiscal 2015 compared to $19.6 million for the second quarter of fiscal 2014. Argan reported EBITDA attributable to stockholders of Argan, Inc. of $19.4 million for the six months ended July 31, 2014 compared to $30.2 million for the same prior year period. Gemma, for its segment, recorded $22.0 million in EBITDA attributable to stockholders of Argan, Inc. for the first six months of fiscal 2015 compared to $30.7 million for the first six months of fiscal 2014.

In the second quarter of fiscal 2015, the Company reported income before income taxes of $17.1 million compared to income before income taxes of $21.4 million in the second quarter of fiscal 2014.

For the first six months of fiscal 2015, the Company reported income before income taxes of $23.8 million compared to income before income taxes of $32.3 million for the first six months of fiscal 2014.

Net income attributable to the stockholders of Argan for the quarter ended July 31, 2014, was $8.6 million, or $0.58 per diluted share based on 14,655,000 diluted shares outstanding, compared to net income attributable to the stockholders of Argan of $12.6 million, or $0.89 per diluted share based on 14,129,000 diluted shares outstanding, for the quarter ended July 31, 2013.

Net income attributable to the stockholders of Argan for the six months ended July 31, 2014 was $12.0 million or $0.82 per diluted share based on 14,641,000 diluted shares outstanding, compared to net income attributable to the stockholders of Argan of $19.0 million, or $1.35 per diluted share based on 14,132,000 diluted shares outstanding, for the six months ended July 31, 2013.

Argan had consolidated cash of $345.2 million as of July 31, 2014 and was debt free. Consolidated working capital increased during the current fiscal year to date period to approximately $154.3 million as of July 31, 2014 and consolidated tangible net worth increased to $158.0 million in the same period.

Gemma’s backlog as of July 31, 2014 was $643 million compared to $465 million as of July 31, 2013.

Commenting on Argan’s financial results, Rainer Bosselmann, Chairman and Chief Executive Officer stated, “Gemma has achieved successful starts on both the Panda Liberty and the Panda Patriot projects. These projects will provide an excellent base for solid financial performance by Argan over the next several years.”

About Argan, Inc.

Argan’s primary business is designing and building energy plants through its Gemma Power Systems subsidiary. These energy plants include traditional gas as well as alternative energy including biodiesel, ethanol, and renewable energy sources such as wind power. Argan also owns Southern Maryland Cable, Inc.

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 Company’s ability to achieve its business strategy while effectively managing costs and expenses; (2) the Company’s ability to successfully and profitably integrate acquisitions; and (3) the continued strong performance of the energy sector. 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 detailed from time to time in Argan’s filings with the Securities and Exchange Commission. In addition, reference is hereby made to cautionary statements with respect to risk factors set forth in the Company’s most recent reports on Form 10-K and 10-Q, and other SEC filings.

ARGAN, INC. AND SUBSIDIARIES

Consolidated Statements of Operations
(Unaudited)
Three Months Ended July 31, Six Months Ended July 31,
2014 2013 2014 2013
REVENUES
Power industry services $ 100,418,000 $ 55,520,000 $ 150,242,000 $ 99,289,000
Telecommunications infrastructure services 1,612,000 2,344,000 2,979,000 5,223,000
Revenues 102,030,000 57,864,000 153,221,000 104,512,000
COST OF REVENUES
Power industry services 79,261,000 34,804,000 119,311,000 66,050,000
Telecommunications infrastructure services 1,205,000 1,803,000 2,296,000 4,177,000
Cost of revenues 80,466,000 36,607,000 121,607,000 70,227,000
GROSS PROFIT 21,564,000 21,257,000 31,614,000 34,285,000
Selling, general and administrative expenses 4,481,000 1,601,000 7,859,000 5,044,000
INCOME FROM OPERATIONS 17,083,000 19,656,000 23,755,000 29,241,000
Gains on the deconsolidation of VIEs 1,324,000 2,444,000
Other income, net 41,000 410,000 63,000 566,000
INCOME BEFORE INCOME TAXES 17,124,000 21,390,000 23,818,000 32,251,000
Income tax expense 5,104,000 7,467,000 6,997,000 11,388,000
NET INCOME 12,020,000 13,923,000 16,821,000 20,863,000
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS 3,470,000 1,300,000 4,796,000 1,830,000
NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC. $ 8,550,000 $ 12,623,000 $ 12,025,000 $ 19,033,000

EARNINGS PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.
Basic $ 0.59 $ 0.90 $ 0.84 $ 1.36
Diluted $ 0.58 $ 0.89 $ 0.82 $ 1.35

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic 14,399,000 13,997,000 14,350,000 13,986,000
Diluted 14,655,000 14,129,000 14,641,000 14,132,000

ARGAN, INC. AND SUBSIDIARIES

Reconciliations to EBITDA
Consolidated Operations (Unaudited)
Three Months Ended July 31,
2014 2013
Net income $ 12,020,000 $ 13,923,000
Less income attributable to noncontrolling interests (3,470,000 ) (1,300,000 )
Interest expense
Income tax expense 5,104,000 7,365,000
Depreciation 141,000 136,000
Amortization of purchased intangible assets 61,000 61,000
EBITDA attributable to the stockholders of Argan, Inc. $ 13,856,000 $ 20,185,000
Reconciliations to EBITDA
Power Industry Services (Unaudited)
Three Months Ended July 31,
2014 2013
Income before income taxes $ 18,428,000 $ 20,823,000
Less pre-tax income attributable to noncontrolling interests (3,470,000 ) (1,402,000 )
Interest expense
Depreciation 96,000 89,000
Amortization of purchased intangible assets 61,000 61,000
EBITDA attributable to the stockholders of Argan, Inc. $ 15,115,000 $ 19,571,000
Reconciliations to EBITDA
Consolidated Operations (Unaudited)
Six Months Ended July 31,
2014 2013
Net income $ 16,821,000 $ 20,863,000
Less income attributable to noncontrolling interests (4,796,000 ) (1,830,000 )
Interest expense (161,000 )
Income tax expense 6,997,000 10,957,000
Depreciation 283,000 265,000
Amortization of purchased intangible assets 121,000 121,000
EBITDA attributable to the stockholders of Argan, Inc. $ 19,426,000 $ 30,215,000
Reconciliations to EBITDA
Power Industry Services (Unaudited)
Six Months Ended July 31,
2014 2013
Income before income taxes $ 26,437,000 $ 32,806,000
Less pre-tax income attributable to noncontrolling interests (4,796,000 ) (2,261,000 )
Interest expense (161,000 )
Depreciation 192,000 172,000
Amortization of purchased intangible assets 121,000 121,000
EBITDA attributable to the stockholders of Argan, Inc. $ 21,954,000 $ 30,677,000

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 GAAP results of operations. Pursuant to the requirements of SEC Regulation G, reconciliations between the Company’s GAAP and non-GAAP financial results 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
CONSOLIDATED BALANCE SHEETS
July 31, 2014 January 31, 2014
ASSETS (Unaudited) (Note 1)
CURRENT ASSETS:
Cash and cash equivalents $345,158,000 $272,209,000
Accounts receivable, net of allowance for doubtful accounts 34,217,000 23,687,000
Costs and estimated earnings in excess of billings 430,000 527,000
Prepaid expenses 2,575,000 1,581,000
Deferred income tax assets 341,000 178,000
Other current assets 1,084,000 377,000
TOTAL CURRENT ASSETS 383,805,000 298,559,000
Property, plant and equipment, net of accumulated depreciation 4,052,000 4,183,000
Goodwill 18,476,000 18,476,000
Intangible assets, net of accumulated amortization 1,967,000 2,088,000
TOTAL ASSETS $408,300,000 $323,306,000
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 39,937,000 $ 22,589,000
Accrued expenses 7,971,000 7,911,000
Billings in excess of costs and estimated earnings 181,584,000 134,736,000
TOTAL CURRENT LIABILITIES 229,492,000 165,236,000
Deferred income tax liabilities 330,000 293,000
TOTAL LIABILITIES 229,822,000 165,529,000
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; 14,442,934 and 14,289,134 shares issued at July 31 and January 31, 2014, respectively; 14,439,701 and 14,285,901 shares outstanding at July 31 and January 31, 2014, respectively

2,166,000

2,143,000

Additional paid-in capital

104,720,000 100,863,000
Retained earnings 65,360,000 53,335,000
Treasury stock, at cost – 3,233 shares at July 31 and January 31, 2014 (33,000 ) (33,000 )
TOTAL STOCKHOLDERS’ EQUITY 172,213,000 156,308,000
Noncontrolling interests 6,265,000 1,469,000
TOTAL EQUITY 178,478,000 157,777,000
TOTAL LIABILITIES AND EQUITY $408,300,000 $323,306,000

Note 1 – The condensed consolidated balance sheet as of January 31, 2014 has been derived from audited consolidated financial statements.

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