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Transcript Summary

Argan, Inc. delivered record-breaking performance for fiscal year 2026, reporting revenue of $944.6 million and net income of $137.8 million. The company’s project backlog reached an all-time high of $2.9 billion, driven by $2.5 billion in new contract additions, primarily in large-scale natural gas power projects. This growth is fueled by surging demand for reliable energy to support AI, data centers, and general electrification. Key operational successes included the early completion of the 950-megawatt Trumbull Energy Center, which contributed to a strong Q4 gross margin of 25%. Financially, Argan remains debt-free with $895 million in cash and investments. The company demonstrated its commitment to shareholders by increasing its quarterly dividend to $0.50 per share and expanding its share buyback program to $150 million. Management indicated they have the capacity to handle up to 12 simultaneous projects and anticipate adding several new contracts in the coming months. Leadership remains bullish on the long-term demand for combined-cycle gas plants as essential grid components, viewing natural gas as a necessary partner to renewable resources to ensure grid reliability and support the growing digital economy.

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Full Earnings Call Transcript — Q4 • 2026-03-26

Operator: Good evening, ladies and gentlemen, and welcome to the Argan, Inc. earnings release conference call for the fourth quarter and fiscal year ended January 31, 2026. This call is being recorded. [Operator Instructions] There is a slide presentation that accompanies today's remarks, which can be accessed via the webcast. At this time, it's my pleasure to turn the floor over to your host for today, John Nesbett and Jennifer Belodeau of IMS Investor Relations. Please go ahead.
Jennifer Belodeau: Thank you. Good evening, and welcome to our conference call to discuss Argan's results for the fourth quarter and fiscal year ended January 31, 2026. On the call today, we have David Watson, Chief Executive Officer; and Josh Baugher, Chief Financial Officer. I'll take a moment to read the safe harbor statement. 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 fourth quarter and full year fiscal 2026 financial results and filed its corresponding Form 10-K report with the Securities and Exchange Commission. Okay. I'll now turn the call over to David Watson, CEO of Argan. Please go ahead, David.
David Watson: Thanks, Jennifer, and thank you, everyone, for joining today. I'll start by reviewing some highlights of our operations and activities, and Josh Baugher, our CFO, will go over our financial results, and then we'll open up the call for Q&A. Our fourth quarter continued the strong execution we achieved across the company throughout fiscal 2026, resulting in record top and bottom line performance for both the quarter and the year. Josh will provide the details of the quarter and full fiscal year in a moment. But in summary, we had record revenue of $262.1 million in the fourth quarter and record revenue of $944.6 million for fiscal 2026. Fourth quarter gross margin of 25% and full year gross margin of 20.5%. Record net income of $49.2 million or $3.47 per diluted share in the fourth quarter and record net income of $137.8 million or $9.74 per diluted share for fiscal 2026. Record EBITDA of $56 million or an EBITDA margin of 21.4% for the fourth quarter and record EBITDA of $162.8 million or an EBITDA margin of 17.2% for fiscal 2026. During fiscal 2026, we added $2.5 billion in new contract value, increasing our consolidated project backlog to more than $2.9 billion at the close of the year. Our balance sheet remains strong, and we generated significant cash flow in the fourth quarter. We have $895 million of cash and investments, net liquidity of $421 million and no debt at January 31, 2026. Finally, we remain committed to returning capital to shareholders. And during the third quarter of fiscal 2026, we raised our quarterly dividend to $0.50 per share or an annual run rate of $2. This represents our third consecutive dividend increase in the past 3 years. This is truly an exciting time for our company, and we are energized by the strong pipeline of opportunities we're seeing. As we've noted on previous earnings calls, our power grid is under increasing strength, rapid growth in AI and data centers, electrification of everything, the need to replace aging power facilities and years of underinvestment in power infrastructure are driving urgent demand for new, reliable power generation capacity. With our capabilities, long-standing customer base, proven track record of execution and industry-leading experience building large complex power projects, Argan is uniquely positioned to meet this demand for the construction of high-quality 24/7 energy resources. With our strong backlog of ongoing projects and robust pipeline of opportunities to build large complex gas-fired power facilities, we're optimistic about the continuing demand environment for our expertise and capabilities. Similar to what I mentioned on our last call, we expect to add a handful of new projects over the next 12 to 20 months. With the teams we have in place and the cadence of our projects, we remain confident in our ability to execute on 10 to 12 jobs simultaneously. Now on to the operational review. Slides 4 and 5 present our three reportable business segments. Our Power segment has the capability to build all types of power facilities, including thermal and a variety of renewable, including solar, solar with battery energy storage systems, biofuel and biomass facilities. Power segment revenues were $204 million in the fourth quarter as compared to $197 million for the fourth quarter of fiscal 2025 and represented 78% of consolidated revenues. Pretax book income was $55 million, and the Power segment closed the year with backlog of $2.7 billion. 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. Revenue in this segment increased to $53 million compared to revenue of $33 million in the fourth quarter of 2025 and contributed 20% consolidated revenues with pretax book income of approximately $4 million. Backlog for the Industrial segment was $253 million at January 31, 2026. Finally, revenue in our Teledata segment was $5 million in the fourth quarter of fiscal 2026 compared to $3 million in the fourth quarter of fiscal 2025 and contributed 2% consolidated revenue. The segment closed fiscal 2026 with backlog of $8.4 million. Teledata provides project management, construction services across power distribution and information communications and data networks for commercial and industrial customers. The segment also works with federal government locations and military installations requiring high-level security clearance as well as data centers. The rapid electrification of everything is driving unprecedented demand for power. At the same time, decades of underinvestment in energy infrastructure has created a critical imbalance between the high demand for energy and the constrained capabilities of the power grid. Much of the nation's thermal power infrastructure is aging out, potentially constraining the supply of reliable, high-quality 24/7 energy that's necessary to run data centers, manufacturing facilities and EV charging infrastructure. Only a handful of companies, including Argan, are capable of building the large, complex combined-cycle facilities necessary to power the electric economy. With our specialized capabilities, long-standing customer and vendor relationships and proven track record of success, we are seeing heightened demand for our services. We remain dedicated to employing a disciplined approach to selecting the projects we believe are best suited to our capabilities, are a good fit within our existing portfolio of projects and strengthen our ability to drive long-term growth and profitability. Our consolidated project backlog at January 31, 2026, totaled $2.9 billion, reflecting the addition of $2.5 billion in new contract value over the course of the year, including three gas-fired power plants in the United States totaling over 3.4 gigawatts. Our current backlog includes fully committed projects across our Power, Industrial and Teledata segments. We are seeing strong demand for our capabilities across all three operating segments. As I mentioned a moment ago, the rapid electrification of the economy is straining our power grid and driving demand for complex combined-cycle projects. We are one of the select few companies with the expertise to successfully execute these projects, and we bring a well-recognized reputation for operational excellence and a proven track record of success. This highly favorable demand environment enables us to take a disciplined approach in selecting the right projects with the right partners in the right geographies. Our backlog is currently composed of approximately 77% natural gas projects, 14% renewable and 9% industrial. With the demand levels we are currently seeing for the new gas-fired facilities, we believe natural gas projects will continue to represent a substantial portion of our backlog for the near and midterm. That said, we remain committed to maintaining our renewable capabilities as we believe grid reliability can benefit from a combination of renewable and thermal resources. Slide 9 highlights a selection of major projects currently underway or recently awarded. We're pleased to share that during December 2025, we reached substantial completion on our 950-megawatt Trumbull Energy Center project. Delivering a project of Trumbull's size and complexity is a significant accomplishment, and I'm especially proud of our team for reaching substantial completion ahead of schedule. We continue to make progress on our 1.2 gigawatt ultra-efficient combined-cycle natural gas-fired plant for SLEC in Texas and began early work on our two additional gas-fired projects in Texas, the 1.4 gigawatt project with CPV and our 860-megawatt project. Work on our 700-megawatt combined-cycle natural gas-fired power plant in the U.S. is also progressing well. In addition to our thermal projects, our renewable projects in the U.S. are moving forward as expected. Overseas, our two projects in Ireland, the Tarbert Next Generation Power Station, a 300-megawatt biofuel plant for SSE Thermal and the 170-megawatt thermal facility continue to make solid progress. Finally, you'll see some of our highlighted projects underway in the Industrial segment, including a data center project valued at $125 million as well as work on a recycling and water treatment plant in Alabama and a water treatment plant in North Carolina. Our backlog reflects the diversity of our capabilities, and we remain intently focused on execution excellence as we move through each project's construction cycle. With that, I'll turn the call over to Josh Baugher to take us through the fourth quarter financials. Go ahead, Josh.
Joshua Baugher: Thanks, David, and good evening, everyone. On Slide 10, we present our consolidated statements of earnings for the fourth quarter and fiscal year ended January 31, 2026. Fourth quarter revenues increased 13% to $262.1 million, primarily due to the timing of certain projects in our Power segment. The Trumbull Energy Center reached substantial completion during the quarter and activity began to ramp up at other recently awarded projects. For the fourth quarter, Argan reported consolidated gross profit of approximately $65.6 million or a gross margin of 25%. Consolidated gross profit for the comparative quarter last fiscal year was $47.6 million, representing a gross margin of 20.5%. The increase in gross profit and improvement in gross margin for the recently ended quarter were primarily driven by our Power segment, reflecting strong project execution, including the achievement of substantial completion ahead of schedule at the Trumbull Energy Center. Gross margins for our Power segment, our Industrial segment and our Teledata segment were 29%, 11% and 14.2%, respectively, for the fourth quarter of fiscal 2026. Selling, general and administrative expenses of $17.9 million for the fourth quarter of fiscal 2026 increased as compared to SG&A of $14.9 million for the comparable quarter prior year. Other income, net, for the 3 months ended January 31, 2026, was $7.7 million, which primarily reflected investment income earned during the period. Net income for the fourth quarter of fiscal 2026 was $49.2 million or $3.47 per diluted share compared to $31.4 million or $2.22 per diluted share for last year's comparable quarter. EBITDA for the quarter ended January 31, 2026, increased to $56 million compared to $39.3 million for the same period of last year. EBITDA as a percent of revenue increased to 21.4% for the fourth quarter of this fiscal year compared to 16.9% for the fourth quarter of last fiscal year. Looking at our full year performance, revenues for fiscal year 2026 increased by 8.1% to $944.6 million as compared to revenues of $874.2 million for the prior fiscal year. Our consolidated gross margin of 20.5% for fiscal 2026 increased as compared to gross margin of 16.1% for fiscal 2025, primarily due to the same reasons described for the quarter. SG&A expenses increased to $59 million for fiscal 2026 as compared to $52.8 million for fiscal 2025, but remain consistent as a percentage of revenues. Net income for fiscal year 2026 was $137.8 million or $9.74 per diluted share compared to $85.5 million or $6.15 per diluted share in the last fiscal year. EBITDA was $162.8 million for fiscal 2026 compared to EBITDA of $113.5 million in fiscal 2025. With that, I'll turn the call back to David.
David Watson: Thanks, Josh. We further strengthened our balance sheet during the fourth quarter. At January 31, 2026, we had approximately $895 million in cash, cash equivalents and investments, generating meaningful investment yields. 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 increasing operations, expands bonding capacity and provides customers a reliable and bankable EPC partner. Stockholders' equity was $462 million at January 31, 2026. This liquidity bridge demonstrates that our business model ordinarily requires a low level of capital expenditures. Our net liquidity of $421 million at January 31, 2026, has increased $120 million compared with net liquidity of $301 million at January 31, 2025. During fiscal 2026, we returned $43 million of capital to our shareholders. We have a disciplined capital allocation strategy, which focuses on our core commitments. First, we invest in our people to ensure we are appropriately prepared to staff and execute our projects. 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. Of note, that increase represents our third consecutive year of raising our quarterly dividend, reflecting the strength of our business and our commitment to returning shareholder value. Since November 2021, when we began our share buyback program, we have returned a total of approximately $114 million to shareholders. Additionally, in April 2025, our Board increased the authorization of the share repurchase program to $150 million. And finally, we will continue to evaluate and consider M&A opportunities that could be additive or complementary to our current capabilities or enhance our geographic footprint. Our company is dedicated to driving long-term value creation for shareholders. Our backlog and pipeline is stronger than it has ever been. And since 2007, we have increased our tangible book value and cumulative dividends per share to record levels. As I mentioned at the start of the call, these are truly exciting times for our company. With our proven success building complex combined-cycle natural gas facilities, we are uniquely positioned to benefit from industry urgency around the construction of energy infrastructure. Our backlog is strong, and our balance sheet is attractive to potential customers, both existing and new. We are seeing a robust pipeline of opportunities and with our visibility today, we are confident that demand for our expertise and services as a partner of choice to the energy infrastructure industry will continue through the near and midterm. To close, we remain focused on our long-term growth strategy, leveraging our core competencies to capitalize on existing and emerging market opportunities, maintaining disciplined risk management, the goal of improving our project management effectiveness and minimizing costly project overruns, strengthening our position as a partner of choice in the construction of power generation facilities that power the electric economy and maintain grid reliability and last but not least, driving organic growth while also being open to acquisition opportunities that make sense for our business through thoughtful capital allocation. As we begin fiscal 2027, we remain committed to capitalizing on the strong demand we are seeing for our services with a disciplined focus on pursuing the right projects with the right partners in the right geographies. Likewise, we are intent upon driving executional excellence throughout our project portfolio. I'd like to thank our entire team for their hard work and dedication to operational excellence. They are the engine behind our company's growth and success, and I thank our shareholders for their continued support. With that, operator, let's open it up for questions.
Operator: [Operator Instructions] Your first question is coming from Rob Brown from State Street (sic) [ Lake Street. ]
Robert Brown: First question, I just wanted to discuss kind of the regions you're seeing demand or interest in your pipeline. What are sort of the regional activities that you're seeing?
David Watson: Rob, great -- question. I appreciate the call. We're seeing a number of opportunities across the country. Obviously, we've had a fair amount of work that we're doing in Texas right now. We've done a lot of work in the PJM over the years. And we're really -- we go where the jobs are. So we really aren't constrained as to where we go to build projects and the amount of opportunities are really across the board. So no real specific region to point out for you.
Robert Brown: Okay. Great. And then you talked a lot about sort of an increasing pipeline. What are you seeing in terms of the -- I guess, the pricing dynamics in terms of projects and the margins on those? Are those staying consistent? Are those going up with the demand growth?
David Watson: We remain disciplined in our approach to every project with our focus being the successful completion of the project, right, ensuring the facility comes online, on time and on budget. Also, as you know, Rob, we have long-standing customer relationships that we value greatly, and we want those relationships to continue through this busy time and beyond. We've been in this business a long time, and we have learned how to anticipate supply chain and other items that may impact the project. And we price our contracts accordingly. Right now, there's enough work for everyone, and our pricing model remains the same as it always has, taking into account today's market, inflation, labor and other various risks. So there is no one-size-fits-all pricing approach as scope, complexity such as combined cycle versus simple cycle, risks that are taken on and other factors can vary different from contract to contract. So we're working very closely with our customers from the start of any contract in a collaborative way in order to drive successful outcomes for them and for us.
Robert Brown: Congratulations on all the progress.
Operator: Your next question is coming from Chris Moore from CJS Securities.
Christopher Moore: Maybe one more on pricing and margins. Just trying to get a sense in terms of what '27 would look like. Obviously, the '26 number, 20.5%, that's got a lot of excess margin from Trumbull in there. If you look at the '26, it was 20.5%. If you look at '25, 16.1%. From where you sit today, is the gross margin for '27 likely somewhere between those two? Just any thoughts you might have on where the gross margin is going to be for the year?
Joshua Baugher: Chris, thanks for joining in on this call and a great question, and you gave some good color behind that -- all that, right? Because over the last 2 years, I think we've had quarterly margins between 11.4% to 25%. So they do bounce around, as you're kind of alluding to. That being said, our margin cadence has trended on the higher side in the current year, just completed. And obviously, we'd like to continue to build on that. But there are a significant number of factors, right, execution, contract type, risk taken on, segment mix, et cetera, that can impact that margin positively or negatively. And as you also know, having covered us for quite some time that we are intentionally conservative with our directional guidance given the -- and due to the lumpy nature of the construction industry. So given the recent awards and the changing mix of projects, contract types and relative percentage of each business segment. It's a little too early to tell where fiscal year '27 will end up from a gross margin standpoint. But we are really encouraged by the makeup of our backlog and our progress to date on the projects underway.
Christopher Moore: Got it. You got a few pretty significant projects just getting going. You talked about adding potentially some new projects over the next 12 to 20 months. Just trying to get a sense, how many new large natural gas projects, say, bigger than $500 million, do you have the capacity to close and actually begin construction on in calendar 2026? Would that be maybe one additional one or -- just trying to get a sense as to what capacity looks like actually for calendar '26 beyond where you already are for CP Basin (sic) [ CPV Basin ] is going to be ramping, Sandow, et cetera?
David Watson: Sure. And you're right to point out that -- we've added a number of recent projects, and we did say that we think that there's -- we expect to add a handful of jobs over the next 8 to 20 months, which kind of follows my guidance from the previous call. But it goes back to what I've cited in the past, which it comes down to project capacity, right, 10 to 12 jobs at one time. Right now, we have 9 underway, 7 thermal and 2 renewable, though I will note that Trumbull just reached substantial completion in December, and so we're getting to the tail end of that. So that means we do have capacity to take on additional jobs this year. And it could be a number of jobs. There's no -- again, it's the 10 to 12 number that is the key, and we're not at that number at this time.
Christopher Moore: Got it. And last one for me. Nice bounce-back quarter for Roberts, $53 million. Backlog looks good there. Is that -- $50 million level, is that sustainable? Or is that a little aggressive if I'm thinking about that moving forward?
David Watson: Yes. We're really encouraged to see the revenue growth over the course of the year. I mean on the revenue front, it started out from $29 million in Q1 and ended up at $53 million in Q4, while the revenue was relatively flat from the prior year to fiscal year '26, you're right to point out that we've been on a trajectory of increasing revenues. We have increased our backlog $200 million from $53 million at the beginning of the year to $253 million at the end of the fiscal year. And that also includes adding a pretty meaningful object, $125 million project that relates to the data center market. So the revenue momentum, the record backlog outside of some potential seasonality here and there, we look forward to increased year-over-year growth for this business. And of course, we remain continued -- our focus is always on job execution and profitability.
Operator: Your next question is coming from Ati Modak from Goldman Sachs.
Ati Modak: I guess on the first one, can you give us any sort of update -- status update almost on the hurdles that the various components of the value chain are at between labor, turbine availabilities? Just give us a sense of where the market stands as of today.
David Watson: So you're -- I assume you're referring to our pipeline and how things are coming -- pushing forward?
Ati Modak: Yes. I mean the market in general, and that helps us think about what that pipeline for you specifically would do as well. Any kind of color to help us think about what the sense of urgency looks like and where the various components are as of today?
David Watson: We remain extremely confident. As you know, our current backlog of $2.9 billion is -- it's fully committed jobs with customers and it will be translated into revenues over the next 3-plus years. The -- our confidence of seeing other projects get into our backlog, I've continued to maintain that we expect those to come in over the next 8 to 20 months, could be next quarter, it could be 3 quarters from now. Again, as a reminder to the listeners, we don't get to control when projects start or not. But from a supply chain standpoint, from a turbine standpoint, interconnection standpoint, there's a fair amount of improving conditions there as the supply chain tries to catch up and meet up with the increased demand, not just in the United States, but globally. And we are seeing that. So hopefully, that answers your question, Ati.
Ati Modak: Yes, that's helpful. And then I think if you can give us a sense on the expansion of the number of teams and how that, in general, is progressing per your expectations. I'm just trying to think of the time line and if there's any reason to believe -- and you kind of suggested things are improving a little bit. Any reason to believe that, that gets pulled forward? How should we think about that?
David Watson: Yes. It's tough for me to give a specific time line on that. I mean, as you know, the constraints, it's people at all levels, including project leadership, craft and back office. And as you know, we're focused on retention, training and adding head count. In fact, our non-craft workforce is at the highest level it's ever been, and we continue to add folks. So all these things put together, we will continue to optimize our current workforce and continue to add. And ideally, it's -- we're 10 to 12 jobs right now. Hopefully, I have a different answer for you down the road.
Ati Modak: Sounds good. And if I can squeeze in one more. In the 10-K, you sort of had some comments on behind-the-meter solutions and sort of requiring additional flexible dispatch and that sort of leading into gas plants. Can you talk about that dynamic? We're getting a lot of inbounds on how that impacts or competes with your business. Would love to hear your perspective on it.
David Watson: Sure. I'm impressed you've already got through the 10-K. It's not a short document.
Ati Modak: I just read that section, to be fair.
David Watson: We're always being asked to participate in behind-the-meter projects. And as I've always stated, it comes down to the right job, the right contract, the right price, the right customer, the right location and what fits best in our portfolio of projects. So it remains a robust opportunity. But the classic opportunities remain robust, and it's across the board. It's a continually evolving market and we continue to participate.
Operator: Your next question is coming from Michael Fairbanks from JPMorgan.
Michael Fairbanks: Maybe just on margins for the quarter. I think you showed 29% gross margins on Power. Can you maybe talk about the driver of that specifically in 4Q? And is that largely driven by the project wrapping up at Trumbull? Or is this more of a broad-based margin strength?
David Watson: Sure thing, Michael. It really comes down to execution. That fundamentally is driving a lot of that success. I mean there is a slight rotation in the mix of our projects as we move into more of a gas-heavy part of our backlog versus renewable side. But it's execution across the board, which I think I mentioned earlier on an answer that we feel pretty good about how we're progressing across the board. And also, clearly reaching early substantial completion on the Trumbull job gave us the opportunity to not incur certain costs. You're not sitting on the job site for an extra 2 months. So that was very beneficial from a margin standpoint as well.
Michael Fairbanks: Great. And then maybe as a follow-up, following up on Rob's question from earlier. Can you talk about the opportunity that you see specifically in the PJM region, especially around this emergency capacity auction and maybe just what the conversations with customers are like in that region?
David Watson: Yes. I mean, to be honest with you, the short answer is it's still a little bit of TBD, right? The emergency capacity procurement auction really hasn't been finalized as to how that's going to look and feel. And clearly, we are going to be monitoring this closely because we've built a lot of power plants in the PJM. I mean it certainly has the potential to have that TEF effect that happened in Texas, right, the Texas Energy Fund that pulled forward a number of opportunities in Texas. It could have that same effect in the PJM, and that's exciting. So we continue to closely monitor it.
Operator: That concludes our Q&A session. I will now hand the conference back to David Watson for closing remarks. Please go ahead.
David Watson: Thank you, all of you for participating in today's call. We look forward to speaking with you again when we report first quarter fiscal 2027 results. Have a great evening.