AGX · Argan, Inc.

Period Performance

For the three months ended October 31, 2025, Argan's consolidated revenue decreased 2.3% year-over-year to $251.2 million, primarily driven by a 7.8% decline in the Power Industry Services segment. Despite the top-line contraction, gross profit increased 5.9% to $46.9 million, and gross margin expanded 144 basis points to 18.7%. The margin improvement was attributed to a favorable mix of projects and contract types, particularly in the Power and Industrial segments. Operating income rose 7.6% to $32.6 million, yielding an operating margin of 13.0% versus 11.8% in the prior year. Net income grew 9.7% to $30.7 million, and diluted earnings per share increased 8.5% to $2.17 from $2.00.

Segment Performance

• Power Industry Services: Revenue fell 7.8% to $195.5 million as construction activity moderated on the Trumbull Energy Center and Midwest Solar and Battery Projects, while the Louisiana LNG Facility concluded. Growth from the 405 MW Midwest Solar Project and the 700 MW Combined-Cycle Project partially offset the decline. Segment operating income was essentially flat at $30.7 million, but operating margin improved to 15.7% from 14.3%.
• Industrial Construction Services: Revenue jumped 19.4% to $49.4 million, driven by increased field services and vessel fabrication work. Operating income nearly doubled to $5.0 million, with margin expanding to 10.2% from 6.6%.
• Telecommunication Infrastructure Services: Revenue surged 75.8% to $6.3 million on higher project volume. Operating income rose to $0.4 million, though margin dipped slightly to 6.5% from 6.4%.

Balance Sheet & Liquidity

Total assets increased 25.7% to $1.05 billion from $836.2 million at January 31, 2025, driven by a $161.0 million rise in cash and cash equivalents and a $40.7 million increase in investments. Cash and investments combined reached $726.8 million, representing 69% of total assets. Working capital (current assets minus current liabilities) improved to $377.3 million from $301.4 million at fiscal year-end. Contract liabilities more than doubled to $451.9 million, reflecting substantial advance payments on new projects and underscoring strong future revenue visibility. The company has no outstanding debt under its $35.0 million revolving credit facility.

Cash Flow Quality

Operating cash flow for the nine months ended October 31, 2025 was $242.4 million, up sharply from $123.0 million in the prior year, primarily due to higher net income ($88.6 million vs $54.1 million) and a $152.7 million increase in contract liabilities. Capital expenditures were modest at $2.7 million, resulting in free cash flow of $239.7 million. Investing activities used $51.4 million, mainly for net purchases of short-term investments and available-for-sale securities. Financing activities consumed $32.5 million, including $17.3 million in dividends and $7.0 million in share repurchases.

MD&A / Forward View

Management highlighted the strong demand environment for natural gas-fired power plants, citing electricity demand growth from data centers, AI, and reshoring. The company added significant project backlog during the quarter: a 1.4 GW combined-cycle plant in Texas (completion in CY2029), an 860 MW plant in ERCOT (completion CY2028), and a 170 MW plant in Ireland (completion CY2028). As of October 31, 2025, total remaining performance obligations (RUPO) stood at $3.0 billion, with approximately 8% expected to be recognized in the remainder of fiscal 2026 and the majority thereafter. The company also noted the enactment of the One Big Beautiful Bill Act, which provides favorable tax changes, and ongoing risks from U.S. trade tariffs on steel and aluminum. No specific revenue or EPS guidance was provided.

Notes & Operating Detail

• Revenue recognition: Contract liabilities (deferred revenue) totaled $451.9 million, while contract assets were $38.4 million. Retentions by project owners rose to $38.3 million from $15.8 million at fiscal year-end.
• Segment backlog: Industrial Construction Services backlog increased to $158.8 million from $53.2 million at January 31, 2025, reflecting new contracts for automotive, data center, and industrial facilities.
• Tax matters: The effective tax rate for the nine months was 15.7%, well below the 21% statutory rate due to a $9.1 million stock-based compensation windfall. The company is contesting an IRS disallowance of $5.8 million in R&D tax credits for fiscal 2021 and 2022.
• Legal proceedings: A U.K. subsidiary is suing EP NI Energy for breach of contract related to an overseas project. The project owner drew a $9.6 million letter of credit, which the company disputes and has recorded as a receivable.
• Share repurchases: The board authorized an additional $25 million for buybacks on April 10, 2025, bringing total authorization to $150 million. During the quarter, 11,553 shares were repurchased for $2.4 million.
• Dividends: The quarterly dividend was increased 33% to $0.50 per share, effective with the October 2025 payment.