0001558370-25-011874
SEC filingArgan reported a robust Q2 FY26 with net income nearly doubling to $35.3M, driven by strong Power segment growth and a low tax rate.
Argan delivered a standout second quarter of fiscal 2026, with net income nearly doubling year over year. Revenue rose 4.7% to $237.7 million, paced by a 13.3% jump in the Power Industry Services segment, which accounted for 82.8% of total revenue. The revenue increase was driven by higher construction activity on the 405 MW Midwest Solar Project and the 700 MW Combined-Cycle Project, partially offset by completions of earlier projects. Industrial Construction Services revenue declined 27.3% due to reduced field services and vessel fabrication work, while Telecommunications Infrastructure Services grew 30.9% on stronger project volumes.
Gross profit soared 42.3% to $44.3 million, as gross margin expanded 490 basis points to 18.6%. The margin improvement reflected a favorable shift in project mix and contract types, particularly within the Power segment, as well as the absence of $2.8 million in unfavorable profit adjustments on an overseas project that impacted the prior-year quarter. Operating income increased 60.9% to $30.1 million, and operating margin rose from 8.2% to 12.6%.
Net income surged 93.8% to $35.3 million, bolstered by a remarkably low income tax expense of $0.4 million (effective rate of 1.0%), compared to $6.1 million (25.1%) a year ago. The low tax rate was primarily due to a $7.9 million stock-based compensation windfall benefit from option exercises. Excluding this discreet item, normalized net income would have been lower, but still well above prior year. Diluted EPS rose to $2.50 from $1.31.
Argan's balance sheet remains debt-free and highly liquid. Cash and cash equivalents increased to $177.9 million from $145.3 million at January 31, 2025, and total investments rose to $394.3 million. Total assets grew to $882.7 million, while total stockholders' equity increased to $393.2 million. Working capital (current assets minus current liabilities) stood at $344.5 million, up $43.0 million from $301.4 million at year-end. The company has no debt outstanding under its $35.0 million revolver, and a letter of credit facility of $25.0 million is available for overseas operations.
Operating cash flow for the first half of fiscal 2026 was $69.9 million, well above net income of $57.8 million, reflecting strong cash conversion. The main sources of cash were net income adjusted for non-cash items ($64.6 million), an increase in contract liabilities ($17.6 million), and a decrease in contract assets ($4.7 million). Uses of cash included a $12.0 million decline in accounts payable and accrued expenses, and a $3.2 million increase in accounts receivable. Capital expenditures were modest at $2.1 million, resulting in free cash flow of $67.8 million. Investing activities included net purchases of U.S. Treasury notes of $67.2 million and net maturities of certificates of deposit of $55.0 million.
Management highlighted a strong market backdrop as U.S. electricity demand reaches highest levels in two decades, driven by data centers, AI, electric vehicles, and manufacturing reshoring. Backlog surged to $2.0 billion at July 31, 2025 from $1.4 billion at year-end, reflecting new contract awards including the 1.2 GW Sandow Lakes Power Station in Texas and a 170 MW thermal project in Ireland, among others. The company also noted that the recently enacted One Big Beautiful Bill Act (OBBBA) provides favorable tax changes but is not expected to be material. Risks include potential cost escalation from tariffs on steel and aluminum, and the ongoing legal dispute over an overseas project. The company expects that its strong liquidity will be sufficient to fund operations and growth opportunities.
Segment results: Power Industry Services revenue rose 13.3% to $196.9M, with operating income of $30.8M (margin 15.7%). Industrial Construction Services revenue fell 27.3% to $36.1M, operating income $2.7M (margin 7.4%). Telecommunications Infrastructure Services revenue grew 30.9% to $4.7M, operating income $0.3M (margin 5.4%).
Geographically, U.S. revenue was $214.2M, Ireland $17.2M, and U.K. $6.3M. Remaining performance obligations (RUPO) totaled $2.0 billion, with ~26% expected to be recognized in the remainder of fiscal 2026. Goodwill remained at $28.0M, with no impairment indicators. Intangible assets net were $1.6M. Stock-based compensation expense was $2.3M in the quarter, and $3.5M year-to-date. The company repurchased 56,117 shares for $7.0M during the first half, and raised the buyback authorization by $25M to $150M. Dividends per share increased 25% to $0.375 quarterly.