Argan, Inc. Q1 FY2027 Earnings Call - Record Revenue Driven by Power Segment Ramp and Margin Expansion

Conference Call Operator: Good evening, ladies and gentlemen, and welcome to the Argan, Inc. earnings conference call for the first quarter of fiscal year 2027, ended April 30, 2026. This call is being recorded. All participants have been placed on a listen-only mode. Following management’s remarks, the call will be opened for questions. There is a slide presentation that accompanies today’s remarks, which can be accessed via the webcast. At this time, it is my pleasure to turn the floor over to your host for today, Jennifer Belodeau of IMS Investor Relations. Please go ahead, ma’am.

Jennifer Belodeau, Investor Relations, IMS Investor Relations: Thank you. Good evening, and welcome to our conference call to discuss Argan’s results for the first quarter of fiscal 2027, ended April 30, 2026. On the call today, we have David Watson, Chief Executive Officer, and Joshua Baugher, Chief Financial Officer. I will take a moment to read the safe harbor statements. Statements made during this conference call and presented in the presentation that are not based on historical facts are forward-looking statements. Such statements include, but are not limited to, projections or statements of future goals and targets regarding the company’s revenues and profits. These statements are subject to known and unknown factors and risks.

The company’s actual results, performance, or achievements may differ materially from those expressed or implied by these forward-looking statements, and some of the factors and risks that could cause or contribute to such material differences have been described in this afternoon’s press release and in Argan’s filings with the U.S. Securities and Exchange Commission. These statements are based on information and understandings that are believed to be accurate as of today, and we do not undertake any duty to update such forward-looking statements. Earlier this afternoon, the company issued a press release announcing the first quarter fiscal 2027 financial results and filed its corresponding Form 10-Q report with the Securities and Exchange Commission. With that out of the way, I’ll turn the call over to David Watson, CEO of Argan. Please go ahead, David.

David Watson, Chief Executive Officer, Argan, Inc.: Thanks, Jennifer, and thank you everyone for joining today. I’ll start by reviewing some highlights of our operations and activities, and Josh Bakker, our CFO, will go over our financial results. We’ll open up the call for Q&A. Our strong first quarter fiscal 2027 results reflect exceptional execution across our business, with all three of our operating segments achieving significant revenue growth and maintained healthy backlog. First quarter highlights included record revenue of $291 million, improved gross margins of 21%, increased net income of $46 million, or $3.24 per diluted share, and improved adjusted EBITDA of $56.4 million. During the quarter, as expected, we saw significant revenue growth in our power segment, driven by the continued ramp-up of construction activities on our most recently awarded projects.

Additionally, we reached substantial completion ahead of schedule at the third and final project of the Midwest Solar and Battery projects, and we reached final completion on the 950-megawatt Trumbull Energy Center in Ohio. Our balance sheet remained strong, and we generated substantial cash flow in the first quarter. At April 30, 2026, we had $974 million of cash and investments, net liquidity of $421 million, and no debt. Our commitment to returning capital to shareholders is a priority, as demonstrated by our quarterly dividend of $0.50 per share or $2 per share on an annual basis. We have an active and opportunistic buyback program in place, which we increased during the first quarter to $200 million from $150 million, while also extending the program’s expiration date through January 31st, 2030. Backlog of $2.8 billion decreased slightly from $2.9 billion at the end of the last quarter.

As we’ve noted before, backlog can move around from quarter to quarter as projects are completed. While we are always pursuing new opportunities, there will at times be a gap between the completion of one job and the announcement of new jobs. Our project pipeline remains robust, and we continue to see heightened demand for our capabilities and expertise as the industry urgently seeks to build energy infrastructure in an environment where power demand is growing exponentially and a generation of power facilities reaches the end of useful life. As I discussed on our last call, we expect to add a handful of new projects over the next 10-18 months. With teams we have in place and the cadence of our projects, we believe we are well positioned to execute on 10-12 jobs simultaneously. Now on to the operational review.

As most of you already know, we have three reportable business segments. Our power segment builds all types of power facilities, including thermal and a variety of renewable, including solar with battery energy storage systems, biofuel, and biomass facilities. Power segment revenues contributed $227 million, or 78% of total revenues in the first quarter of 2027. Pre-tax book income was $52 million, and the power segment had backlog of $2.5 billion at the close of the first quarter. The industrial segment provides field services supporting new plant construction and additions for industrial facilities and fabricates metal components like piping systems and pressure vessels in its fabrication facility. Revenue increased to $58 million and contributed 20% of consolidated revenues, with pre-tax book income of approximately $5 million. Backlog for the industrial segment was $225 million at April 30, 2026.

Finally, revenue in our teledata segment was $6 million in the first quarter of fiscal 2027 and contributed 2% consolidated revenue. The segment exited the first quarter with backlog of $8 million. Teledata provides project management and construction services across power distribution and information, communications, and data networks for commercial and industrial customers. The segment works with data centers as well as with federal government locations and military installations requiring high-level security clearance. Our consolidated project backlog consists of fully committed projects across our power, industrial, and teledata segments and total $2.8 billion at April 30, 2026. Demand for our capabilities across all three operating segments is high, particularly in our power segment, where our current backlog includes four gas-fired power plants in the United States totaling over 4.1 gigawatts.

Our industrial segment is also experiencing increased demand, highlighted by a data center contract we were awarded in November of 2025 for the fabrication of thermal expansion and energy storage tanks. In support of this project, and to better position the company to address new opportunities, we have begun construction on an additional fabrication facility in North Carolina, which we expect to complete later this year. The electrification of the economy, including the onshoring of domestic manufacturing, the use of EVs, and the proliferation of data centers, is creating urgent demand for additional energy infrastructure to support a power grid that is under tremendous pressure. Gas-fired plants remain the ideal solution for delivering reliable, uninterrupted power, and only a limited number of firms, including Argan, are able to successfully execute these complex projects.

The robust demand environment, coupled with our proven track record, allows us a disciplined approach in choosing the right projects in the right locations with the right partners. Our backlog is currently composed of approximately 79% natural gas projects, 13% renewable, and 8% industrial. With the current demand for natural gas-fired facilities, we expect these complex combined cycle projects will represent the majority of our backlog for the near and midterm. Renewable resources still play a valuable role as a power resource, and while demand for these has softened, we subscribe to an all-of-the-above approach when it comes to power generation. With that in mind, we plan to maintain renewable capabilities so that we remain competitively positioned to meet market demand and the needs of our customers going forward. Slide seven highlights the selection of major projects currently underway or recently awarded.

As you know, we reached substantial completion on our 950-megawatt Trumbull Energy Center project in December 2025, ahead of schedule, and the project has now reached final completion. Additionally, during the first quarter, we reached substantial completion, also ahead of schedule, on the final project of our three-part Midwest Solar and Battery projects. Our projects are complex in nature, and our ability to reach early completion milestones is a testament to our project management capabilities in delivering excellent execution. In Texas, our 1.2-gigawatt ultra-efficient combined cycle natural gas-fired plant for SLEC is progressing well, and we’re beginning to see construction ramp at our two other gas-fired projects in Texas, the 1.4-gigawatt project with CPV and our 860-megawatt project. We are also moving forward as expected on our 700-megawatt combined cycle natural gas-fired power plant in the U.S.

Looking internationally, we continue to make good progress on the Tarbert Next Generation Power Station, a 300-megawatt biofuel plant for SSE Thermal, and on a 170-megawatt thermal facility, both of which are in Ireland. As I mentioned earlier, our industrial segment has a $125 million data center project underway and is working on a recycling and water treatment plant in Alabama. While the scope, scale, and complexity of our projects is diverse, each of our segments share a commitment to execution excellence throughout every project we undertake. With that, I’ll turn the call over to Josh Backer to take us through the first quarter 2027 financials. Go ahead, Josh.

Joshua Baugher, Chief Financial Officer, Argan, Inc.: Thanks, David, and good evening, everyone. On slide eight, we present our consolidated statements of earnings for the first quarter of fiscal 2027 ended April 30th, 2026. First quarter revenues increased 50% to $291 million as compared to $194 million for the first quarter of fiscal 2026, primarily due to the timing of certain projects in our power segment as activity began to ramp at certain recently awarded projects. For the first quarter, Argan reported consolidated gross profit of approximately $61.1 million, or a gross margin of 21%. Consolidated gross profit for the comparative quarter last fiscal year was $36.9 million, representing a gross margin of 19%.

The increase in gross profit and improvement in gross margin for the recently ended quarter was primarily driven by our power segment, reflecting a shift in project and contract mix, strong project execution, the achievement of substantial completion ahead of schedule on the final Midwest Solar and Battery Project, and completion of the Trumbull Energy Center. Gross margins for our power segment, our industrial segment, and our teledata segment were 23.6%, 11.8%, and 11%, respectively, for the first quarter of fiscal 2027. Selling, general, and administrative expenses of $15.7 million for the first quarter of fiscal 2027 increases compared to SG&A of $12.5 million for the comparable prior year period. As a percentage of revenue, SG&A decreased to 5.4% compared to 6.5% in the first quarter of fiscal 2026.

Other income net for the three months ended April 30th, 2026, was $8.4 million, which primarily reflected investment income earned during the period. Net income for the first quarter of fiscal 2027 was $46.1 million, or $3.24 per diluted share, compared to $22.6 million or $1.60 per diluted share for last year’s comparable quarter.

Adjusted EBITDA for the first quarter of fiscal 2027 increased to $56.4 million, or an adjusted EBITDA margin of 19.4%, as compared to $31.5 million, or an adjusted EBITDA margin of 16.3% in the first quarter of fiscal 2026. With that, I’ll turn the call back to David.

David Watson, Chief Executive Officer, Argan, Inc.: Thanks, Josh. We further strengthened our balance sheet during the first quarter, recording approximately $974 million in cash equivalents, and investments, generating meaningful investment yields at April 30, 2026. Our net liquidity was $421 million, and we had no debt. The strength of our balance sheet is a competitive advantage as it supports our growing operations, expands bonding capacity, provides customers a reliable and bankable EPC partner. Stockholders’ equity was $474 million at April 30, 2026. This liquidity bridge demonstrates that our business model ordinarily requires a low-level capital expenditures. Our net liquidity of $421 million at April 30, 2026, is consistent with net liquidity at January 31st, 2026, as we returned $33.6 million of capital to our shareholders during the first quarter of fiscal 2027. We employ a disciplined approach to our capital allocation strategy, primarily focused on four core areas.

First, we invest organically to develop and retain our people, as well as adding to our headcount in order to ensure that we are well-positioned to staff and execute our projects. Additionally, as just mentioned, we are expanding our fabrication capabilities to meet data center customer demand. Second, the company pays a quarterly dividend, which we increased 33% to $0.50 per common share in September 2025, creating an annual dividend run rate of $2 per share. The increase represented our third consecutive year of raising our quarterly dividend, which cumulatively has increased by 100%, reflecting the strength of our business and our commitment to returning shareholder value. We’ve had a share buyback program in place since November of 2021, and during the first quarter of fiscal year 2027, our board increased the total repurchase authorization to $200 million and extended the expiration date through January 31st, 2030.

Since the program’s inception, we have returned a total of approximately $116.7 million to shareholders through the repurchase program. Finally, we continue to thoughtfully evaluate M&A opportunities that could be additive or complementary to our current capabilities or enhance our geographic footprint. We are in a very exciting and busy time for our industry and our company. While the electrification of the economy promotes growth and progress, the associated tremendous increase in power demand is also severely taxing the power grid. Gas-fired plants remain the ideal solution for delivering the reliable, uninterrupted power that is needed to fuel the economy. As a result, the project pipeline for complex combined cycle natural gas facilities is robust, with only a handful of companies who can successfully execute this type of build.

As we move through our 20th year constructing energy infrastructure, Argan is competitively positioned with the diverse capabilities, disciplined risk management, proven track record of exceptional execution, and strong balance sheet to continue expanding our role as a partner of choice for the industry. With our current visibility of the landscape, we expect to leverage this favorable demand environment for the build-out of energy and industrial infrastructure through the near and midterm. Importantly, we remain dedicated to maintaining a disciplined approach as we select the projects we believe are best suited to our capabilities, are a good fit with our existing project commitments, and strengthen our ability to drive long-term growth and profitability. As always, I’d like to thank our entire team for their hard work and dedication to operational excellence. They are the core driver of our company’s growth and success.

I also thank our shareholders for their continued support and confidence in our company, and we hope to see some of you at our annual meeting next week. With that, operator, let’s open it up for questions.

Conference Call Operator: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star 1 if you have a question or a comment. The first question comes from Chris Moore with CJS Securities. Please proceed.

Chris Moore, Analyst, CJS Securities: Hey, good afternoon, guys. Congrats on another strong quarter.

David Watson, Chief Executive Officer, Argan, Inc.: Thanks, Chris.

Chris Moore, Analyst, CJS Securities: All right. Looks like demand is certainly not the issue. It feels like it’s all about capacity and margins these days. Maybe we could talk a little bit more about capacity. Certainly understanding, given the increased costs, increased pricing means that $2 billion in revenue in a few years doesn’t mean twice the labor that it took to generate $1 billion in revenue, say, today or two years ago. When you think about capacity, you think that Argan would have the capacity to do $2 billion in revenue a few years out?

David Watson, Chief Executive Officer, Argan, Inc.: Yeah. A number of points there to digest. One

As we’ve stated in the past, our capacity is still 10 to 12 jobs. To your point about revenue, the amount of revenue that is generated on any given job is going to change as you move through the job from year one to year two to year three to year four. When we think about our jobs, we think about where we are in the schedule, are we on schedule and how are we executing? The revenues will come. We always know the revenues will come. You’re correct in stating that the price for jobs, given inflation, given the market, given all these factors that are part of it, is resulting in each build being a bigger job from a revenue standpoint and from a cost standpoint.

We currently have eight power jobs underway right now, Chris, six thermal and two renewables, and we expect to add more over the next 10 to 18 months. At the end of the day, our teams are growing with training and experience. We do plan to grow our capacity in the future, but the hiring of people, training of people, both in-house and in the field takes time. Gemma hasn’t had a lost job since we acquired them. There was a Gemma way of doing things, and that is important to train people in, and that takes time. We’re not going to provide guidance as to what our capacity growth is going to be and when, but to your point about is $2 billion of revenue achievable in the future with the growth of our platform? The answer is yes, down the road.

Chris Moore, Analyst, CJS Securities: Got it. Fair enough. In terms of, as you made the point a couple of times, there’s only so many players that are willing to do fixed price, can handle the combined cycle. I’m trying to just distinguish between the independent power producers and the utilities. My understanding is the IPPs really have to go on the fixed price route because they can’t get the bank financing otherwise. Utilities have a little bit more leeway, so perhaps, from a competitive standpoint, there may be more players in there. I guess the question is the pricing that you see generally from an IPP much different from a utility-backed project because of the fact that IPPs, there’s a smaller subset of competitors that can be involved in that process?

David Watson, Chief Executive Officer, Argan, Inc.: I think the way to approach this question, Chris, is really it’s about the project itself and whether it’s being developed by an IPP or whether it’s being developed by a utility. It depends on the scope, it depends on the complexity, it depends on the size. I wouldn’t state that the price pursuant to an IPP customer versus a public utility customer is going to be meaningfully different. It really comes down to the project, the location, et cetera. Typically you are correct. IPPs typically do utilize the fixed price contract, which we are very happy to take on and frankly have 20 years of proving that we can execute on fixed price contracts. Utilities have fixed price contracts and non-fixed price contracts, and we’ve worked with both types of customers, and we look forward to working with both types of customers going forward.

Chris Moore, Analyst, CJS Securities: Got it. All right. I appreciate that. I’ll jump back in line, Dave. Thanks.

David Watson, Chief Executive Officer, Argan, Inc.: Sure.

Conference Call Operator: The next question comes from Atif Malik with Goldman Sachs. Please proceed.

Atif Malik, Analyst, Goldman Sachs: Hey, David. You mentioned a handful of new projects in 10 to 18 months. Can you talk about that expectation a little bit more in terms of nature of the conversations with the time it is taking, and how does that compare with industry level orders for other players? We’re just wondering what the competitive dynamics look like there.

David Watson, Chief Executive Officer, Argan, Inc.: Atif Malik, great. Thanks for calling in. Our visibility is-- you know we’ve historically been very conservative about predicting where our backlog can go, and we always can kind of stick to that approach. We’re typically looking at opportunities that are on the bigger side of things, though we’re not shy to consider smaller projects as well. I think that there’s only a handful of folks that can do the gigawatt plus types of jobs, the competitive set for that is maybe a little smaller than, say, going after the 100 to 200 to 300 megawatt type size jobs. As it relates to timing for us, we’re sticking to the same guidance that we gave, right?

10-18 months Just with the passage of time is a little bit shorter than where we were at the year-end earnings call. It’s just a matter of working with these opportunities and these customers and helping them get to the finish line of their development so that we can kick them off.

Atif Malik, Analyst, Goldman Sachs: That’s very helpful. On the margins, can you talk about the impact that the early completion of the Midwest projects had in this quarter and the otherwise structural efficiency element to margins as we look forward?

David Watson, Chief Executive Officer, Argan, Inc.: Yeah, margins in general, Ati. We were really pleased to have a quarter on the blended rate of 21%. Yes, when you’re able to achieve early substantial completion on your jobs, like we did last quarter with Trumbull and then this quarter with the Midwest Solar project. We also achieved final completion on Trumbull this quarter. A lot of good data points. The other data point to consider is, we feel like we’re in a good spot from an execution standpoint on all of our jobs, and that’s really important because execution is what matters. That enables us to potentially achieve outsized returns. We’re encouraged by the margin strength we’ve seen in this and recent quarters, again, driven by that strong execution.

The other part of it, Atif, is we’re in the early phases of a number of major jobs with a lot of outstanding risks to account for. Visibility into where ultimate margins end up is dependent on a lot of factors, and therefore it’s a little too early to tell. Similar to the last couple of years, in general, our consolidated blended rates tend to be in the high teens and low 20s and can have meaningful variations for the reasons I described earlier. We’re pretty excited about what we just completed. Frankly, we’ve been pretty excited about the margins we’ve achieved over the last seven quarters, and again, it comes down to execution and doing our thing.

Atif Malik, Analyst, Goldman Sachs: Great. Thank you, and congratulations.

David Watson, Chief Executive Officer, Argan, Inc.: Thank you.

Conference Call Operator: Our next question comes from Rob Brown with Lake Street Capital Markets. Please proceed.

Rob Brown, Analyst, Lake Street Capital Markets: Good afternoon. Congratulations on all the progress.

David Watson, Chief Executive Officer, Argan, Inc.: Thanks, Rob.

Rob Brown, Analyst, Lake Street Capital Markets: Just wanted to follow up on kind of the expansion of the fabrication in North Carolina, I guess in the industrial segment. What’s sort of the additional capacity you bring in? I guess, I assume, what’s driving that is additional demand. Could you characterize kind of the pipeline of activity there that led you to increase capacity?

David Watson, Chief Executive Officer, Argan, Inc.: Yeah, we’re really excited about what the industrial segment’s been doing over the last couple of quarters, in the last couple of years. Record revenue this quarter for them. They’re still maintaining $225 million of backlog. We’ve seen a lot of opportunity with working on some of these thermal expansion tanks for data centers and see a multi-year runway for opportunities there, in addition to what we typically fabricate. I was out in late April down in North Carolina for the groundbreaking. It’s exciting about the progress that we’ve already achieved on getting this facility constructed and ultimately expect to, in a short period of time, to actually have this thing producing these tanks later this year. It’s an aggressive timeline. I think we can get there.

Honestly, it’s there to support us as we have our current contracts, but also with the expectation of continued work. Pretty exciting time for us for that group.

Rob Brown, Analyst, Lake Street Capital Markets: Okay, great. Then just a little bit back to the pipeline of power projects, and I know you gave a discussion on the 10 to 18 months, but just want to get a sense of, in the industry, are you seeing any changes to the timeline there in terms of acceleration for that pipeline of power projects and willingness of customers to kind of make decisions and move forward?

David Watson, Chief Executive Officer, Argan, Inc.: No real changes, Rob, from where it’s been. It’s just a matter of being able to achieve all the developmental milestones between the air permits, the access to gas, the water permits, the turbines, the financing, et cetera. We’re not really seeing anything that would consider a change in the market and the developer’s behavior. We’re honestly just there to support them and ultimately enter into the right EPC contracts with the right customers to make it happen. We’re continuing to provide the same guidance, that 10 to 18 months.

I guess I’d also mention, while we’ve converted $550 million in revenues over the last couple of quarters, we’ve been able to add $215 million in Q4 and over $125 million in Q1 from the regular cadence of new and add-on jobs in our industrial and teledata segments, as well as various change orders across the businesses. We’ve been pretty happy, and I just wanted to point out that there is a meaningful backlog growth outside of the major jobs that we add periodically that unfortunately is often controlled by the project owners.

Rob Brown, Analyst, Lake Street Capital Markets: Okay, thank you. I’ll turn it over.

David Watson, Chief Executive Officer, Argan, Inc.: Great.

Conference Call Operator: Okay, our next question comes from Michael Feniger with JP Morgan. Please proceed.

Mark Strauss, Analyst, JP Morgan: Yes, good afternoon. This is Mark Strauss on for Michael. Thanks for taking our questions. I just want to follow up on Rob’s question about the fabrication facility. Can you talk about the CapEx requirement that would be required there, and how to think about what that opens up as far as an annual revenue opportunity or any other kind of capacity metrics that you think would be relevant? Thanks.

David Watson, Chief Executive Officer, Argan, Inc.: Yeah, Mark, thanks for calling in. The CapEx, as you know, and as our net liquidity bridge has always shown, we’re a very light CapEx business. This is one of the few times where we actually have sat down to make a meaningful PP&E investment. We’re estimating that the investment is in the 10-plus, $10 million-$13 million range or so. Meaningful, but not a massive investment, so to speak. What does that mean from expanding our revenue cadence? We’ve currently got a facility running right now, full bore.

The nice thing about this new facility is it’s about 20 miles away from the existing facility, which we believe is going to give us a leg up. It’s not just about standing it up and building it, but also staffing it up and getting the right folks in there, and we’re going to be able to utilize existing resources at our current facility over there to accelerate that process. That should allow us to be able to add. I don’t have an estimate as to the amount of additional revenue, but as you can see with the industrial group, our expectation is that we meaningfully exceed the revenue that we did in the previous year.

Mark Strauss, Analyst, JP Morgan: Okay. Your balance sheet continues to improve here. In the past, you talked about kind of the amount of backlog that could be supported by a given balance sheet. I’m just curious if you could update there with your most recent balance sheet. Thanks, David.

David Watson, Chief Executive Officer, Argan, Inc.: Sure. Net liquidity remained consistent at $421 million. That clearly supports a book of business of $2.8 billion in backlog, and clearly it’s our expectation that that will be able to support several billion more in backlog over time, again, depending on timing and all of that good stuff. We feel pretty good about where we stand on that, and it really comes down to adding these new jobs over the next 10 to 18 months.

Conference Call Operator: Okay. We have no further questions in the queue. I would now like to turn the floor back to David Watson for our closing remarks.

David Watson, Chief Executive Officer, Argan, Inc.: Hey, thank you all for participating in today’s call. We look forward to speaking with you again when we report second quarter fiscal 2027 results. Have a great evening, everybody.

Conference Call Operator: This concludes today’s conference, and you may disconnect your lines at this time. Thank you for your participation.