Argan, Inc 2027 Q2 Earnings Call

Good evening, and welcome to our conference call to discuss Argan's results for the second quarter of fiscal 2027 ended July 31, 2026. On the call today, we have David Watson, Chief Executive Officer, and Josh 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 its second quarter fiscal 2027 financial results and filed its corresponding Form 10-Q report with the Securities and Exchange Commission. Okay, with that out of the way, I will turn the call over to David Watson, CEO of Argan.

Please go ahead, David. Thanks, Jennifer, and thank you, everyone, for joining today.

I will start by reviewing some highlights of our operations and activities, and Josh Baugher, our CFO, will go over our financial results. Then we will open up the call for questions. Our strong second quarter built on the momentum we created in the first quarter of fiscal 2027, demonstrating our operational strength across our business. Each of our operating segments recorded substantially improved revenue, contributing to our record consolidated revenue of $384 million for the quarter. Our power and industrial segments delivered significant revenue growth of 53% and 111%, respectively, for the quarter, with Teledata revenue growing 40%. Our second quarter highlights include consolidated gross margin of 19.3%, record net income of $53.3 million or $3.76 per diluted share, record adjusted EBITDA of $70 million, and adjusted EBITDA margin of 18.2%.

We also executed at the end of the quarter on M&A with the purchase of ValCor Communications, a Connecticut-based provider of installation and repair services for information, communication, and data networks. We are excited about the addition of ValCor, which strengthens our Teledata segment, giving us a presence in New England and bringing a client base of Fortune 500 technology, defense, and aerospace customers from the region. Our balance sheet remains strong with approximately $1 billion of cash and investments, net liquidity of $440 million, and no debt at July 31, 2026. We continued our practice of returning capital to our shareholders through our quarterly dividend of $0.50 per share, which is $2 per share on an annual basis. A very strong quarter overall with a lot of progress made. Now on to the operational review. We have three reportable business segments: power, industrial, and Teledata.

Our power segment is our largest, building 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 grew 53% and contributed $301 million, or 78% of total revenue in the second quarter of fiscal 2027, with pre-tax book income of $66 million. 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 by 111% to $76 million in the second quarter, or 20% of consolidated revenue, with pre-tax book income of approximately $4 million. Backlog for the industrial segment was $210 million at July 31, 2026, and construction on our second fabrication facility is progressing well.

Finally, revenue in our Teledata segment grew 40% to $7 million in the second quarter of fiscal 2027 and contributed 2% of consolidated revenue. 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. As I just mentioned, we expect that our recent acquisition of ValCor will expand and extend our reach as a provider of Teledata services. Turning to our backlog. Our consolidated backlog of fully committed projects is $2.5 billion at July 31, 2026, a decrease from $2.9 billion at the start of fiscal 2027. As you all know, we take a conservative approach to reporting backlog and typically only include the value of a contract in backlog when we have received a notice to proceed.

Because of that, our backlog amount will move around from quarter to quarter related to the completion of certain projects and start time of pending projects. Our pipeline remains exceptionally strong, reflecting the demand for the reliable 24/7 energy resources needed to power an economy that is increasingly reliant on electrification. 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 U.S. totaling over 4.1 gigawatts. Our industrial segment is also seeing strong demand, highlighted by a data center contract we were awarded in November of 2025 for the fabrication of thermal expansion and energy storage tanks. As we discussed on last quarter's call, we are currently building an additional fabrication facility in North Carolina to support this project and to better position the company to address new opportunities.

The new facility is on track for completion later this year. As we move forward, we remain confident in our expectation that we will add a handful of new projects over the next 7-15 months. With the timing of our projects and the teams we have in place, as well as those that are in training, we believe we are well positioned to execute on 10 to 12 jobs simultaneously. There continues to be a great deal of media in industry coverage around the significant increase in power demand due to the electrification of our economy. This dynamic includes the onshoring of domestic manufacturing, the use of EVs, and the building of data centers, all which are driving urgency around the build cycle for additional energy infrastructure to support an already stressed power grid.

Gas-fired plants are widely recognized as the ideal solution for delivering reliable, uninterrupted power, and there are a limited number of firms, including Argan, who have the capabilities to successfully execute these complex construction projects. Despite some recent regulatory back and forth around data center development that's been in the news, the demand environment for our services remains very strong, and that, combined with our proven track record, is allowing us to remain selective in pursuing the right projects in the right locations with the right partners. Our backlog is currently composed of approximately 80% natural gas projects, 11% renewable, and 8% industrial. With the current demand of natural gas-fired facilities and our core competencies in building these types of projects, we expect complex combined cycle projects, which will represent the majority of our backlog, for the near and midterm.

Renewable energy still plays an important role as a power resource, and we subscribe to an all-of-the-above approach when it comes to power generation. We plan to maintain our renewable capabilities so that we remain competitively positioned to meet market demand and customer needs, but our core activities will center around natural gas builds. Slide seven highlights a selection of our major projects currently underway or recently awarded. As you know, during the first quarter, we reached substantial completion ahead of schedule on the final project of our three-part Midwest Solar and Battery Projects. And now that project has reached final completion. In addition, we expect to reach substantial completion ahead of schedule for our 405-megawatt Midwest Solar project later this month.

Given the complexity of our projects, our ability to reach early completion milestones shows the high level proficiency of our teams in staying on task and on schedule, delivering excellent execution throughout a multi-year project. In Texas, our 1.2 gigawatt ultra-efficient combined cycle natural gas fire plant for Sandow Lakes Energy Company is moving forward as expected, and construction is ramping at our two other gas-fired projects in Texas, the 1.4 gigawatt project with Competitive Power Ventures and our 860-megawatt project. We're also making good progress on our 700-megawatt combined cycle natural gas-fired power plant in the U.S. Looking internationally, our two projects in Ireland, the Tarbert Next Generation Power Station, a 300-megawatt biofuel plant for SSE Thermal, and our 170-megawatt thermal facility are progressing well. As I mentioned earlier, our industrial segment has a $125 million data center project underway and is also working on a recycling and water treatment plant in Alabama.

Our project portfolio is diverse in terms of scope, scale, complexity, and location. But all of our teams approach each project with the highest commitment to excellent execution, and our reputation as a reliable partner is a testament to that diligent approach. With that, I'll turn the call over to Josh Baugher to take us through the financials for the second quarter and first six months of 2027.