Good evening, ladies and gentlemen, and welcome to the Argan Inc. Conference Call for First Quarter Fiscal 2024 Ended April 30, 2023. 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, John Nesbett of IMS, Investor Relations. Please go ahead.

Thank you. Good evening, and welcome to our conference call to discuss Argan's results for the first quarter of fiscal year 2024 ended April 30, 2023. On the call today, we have David Watson, Chief Executive 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 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 by 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 Argan's filing with the US Securities and Exchange Commission. These statements are based on information and understandings that we believe to be accurate as of today do not undertake any duty to update such forward-looking statements. Earlier this afternoon, as at least most of you know, the company issued a press release announcing its first quarter financial results and filed its first quarter Form 10-Q with the Securities and Exchange Commission. Okay. I will now turn the call over to David Watson, Chief Executive Officer of Argan. Go ahead, David.

Thanks, John, and thank you everyone for joining today. I'll start by reviewing some of the highlights of our operations and financial results and activities for the first quarter of fiscal 2024 ended April 30, 2023. Then we'll open up the call for a brief Q&A, and for that portion of the call, I'll be joined by Hank Deily, our Chief Financial Officer. Argan is a leading full service partner to the power industry, well positioned to continue driving long-term growth as demand for diverse energy sources continues to grow. The long-term macroenvironment continues to strengthen for us in part driven by the refreshment and replacement of on-demand power-generating infrastructure as aging plants and facilities are retired and also supported by federal legislation such as the Inflation Reduction Act. Most recently, there is potential upside for us from the debt ceiling bill, which was signed by President Biden on June 3rd. The bill includes language addressing the streamlining of the current permitting process for energy-generating facilities which would ease certain constraints on the power industry. Backlog of over $0.8 billion as of April 30, 2023 is notable, given that we did not add any major projects during the quarter and our balance sheet remains strong with $317 million of cash and liquid investments. Additionally, we carry no debt. During the first quarter, we repurchased approximately 93,000 shares of our common stock for a total spend of approximately $3.7 million. Reviewing our three reportable business segments. The power industry services represented 68% of our first quarter revenues. This segment is comprised of our Gemma Power Systems and Atlantic Projects Company operating units and focuses on the construction of all types of power facilities, including efficient gas-fired power plants, solar energy fields, biomass facilities and wind farms. The industrial Field and Fabrication…

At this time, we will be conducting a question-and-answer session. [Operator Instructions] The first question comes from Rob Brown with Lake Street Capital. Please proceed.

Good afternoon.

Good afternoon, Rob.

I just wanted to dig a little bit more into the pipeline of new projects that you've talked about and are working on. How is that developing, has the sort of some of the stuff with the IRA and other things in the market and sort of improving that or how do you sort of see that pipeline moving along at this point?

Yeah, we're excited about our pipeline and our backlog. We do expect to add some new large projects during the current year and into next based on our current visibility into our pipeline. We may see a reduction in our reported backlog over the next quarter or two as we convert current backlog into revenue, but ultimately expect to see our backlog meaningfully exceed where we are today. Keep in mind the starts of future project wins are controlled by the customer, which makes it difficult to forecast our backlog given the material size of certain of our projects.

Okay, great. Thank you. And then on The Roberts industrial fab business, it's quite strong and continues to grow nicely. You said there was a couple of other projects you won. How would you sort of characterize that trend line in that business and do you see this sort of revenue level, I guess, $120 million or so annualized, has that continued to grow on a new run rate for that business?

Yeah, I mean over the past 12 months, TRC has seen their backlog grow 180% to over $150 million. So, they have already experienced some tremendous growth, while potential recession could cause certain customers to tighten their belts. I expect TRC to continue to add a diverse set of both smaller and larger projects to their backlog over the course of the year. I'd also like to mention that TRC is located in a region experiencing tremendous growth which provides really good tailwinds for us. So based on current visibility, I would skew the timing of new TRC projects that are on the larger side towards the later stages of the year and to your point about their run rate, with the backlog, it does seem to suggest that is possible to be in that $100 million to $130 million range.

Okay, great. Thank you. And my last question is sort of on the margin activity in the quarter, you talked a lot about mix-shifting around. On a project level, are you seeing those margins or you expect them or were there some ins and outs in the quarter that depressed the margin?

Yeah, margins. First and foremost, we are focused on project success, project success for our customers is the number one way to get repeat business and future gross margins. As I mentioned earlier on the call, the prepared remarks, our margins can fluctuate quarter-to-quarter related to revenue mix, current project risk profiles, commercial terms and associated margin expectations but because of this, we tend to look at margins on a longer-term basis. And so while we're still early in this current fiscal year and our margin profile will continue to fluctuate, it's reasonable to expect for our full year fiscal 2024 margins to improve and be higher than the 13.7% that we just reported in Q1.

Okay, great. Thank you, David. I'll turn it over.

Great. Thanks Rob.

Okay. The next question comes from Chris Moore with CJS Securities. Chris, please proceed.

Hey, good afternoon, and thanks for taking a few questions. So, maybe a few things on Guernsey, so substantial completion there, what's left to do? Is there any risk left, is there any additional revenue coming from Guernsey and finally, is there potential for any additional excess margin there?

Yeah, there is always a number of items to close out that take time after the primary portions of the job are complete and it really was a great event earlier this week to see our customer cadence successfully reach commercial operations, success for them is a success for us. But not only do we need to complete punch list items and close out with our customer, but we have to settle up matters with suppliers, subcontractors, the OEM and other parties that have been involved with the project. And these efforts can take multiple months, and in some cases, even quarters. So and these are just a natural final steps on any major projects such as Guernsey, which is our largest in history. So at the end of the day, we're always committed to delivering the best possible project result each and every time and there is expected to be additional revenue given that we still got several months to go.

Got it. And from an excess margin standpoint likely not anything additional at this point in time or any thoughts there?

The accounting, ultimately, we've got a lot of closing out to do. So base off of the current accounting as of 4/30, the margins are what they currently are.

Got it. Switch to Trumbull. From my understanding it's kind of a guesstimate at this point in time, but just trying to get a sense as to when you might be -- when you would get to peak there, is that something that could happen later in fiscal '24, is that more likely a fiscal '25 timeframe?

Yeah. Trumbull is off to a good start. It's meeting our expectations as it's ramping up and is expected to ramp up throughout the year. This one has a little bit of a longer timeline and isn't expected to finish till the beginning of 2026. And so peak activity, it's always difficult to determine when given the supply chain, the cadence of a project and everything else that may or may not be in our control, would probably be more of a fiscal year 2025 activity versus during the current fiscal year.

Got it. And maybe let's just go back to the gross margin for a second. So in terms of the things that are going to drive the margin from here, obviously the Gemma revenues has better margins than some of the other businesses. So Trumbull ramping would be the key one at this point in time?

Yeah, I mean back to margins and back to backlog, where we really are excited about the number of opportunities that we're looking at and I realize that you're looking at what margins related to Gemma will be in the current fiscal year with the one major project that's in-house, which is the Trumbull job, but keep in mind, we do have a number of non-disclosed jobs that we're working on. So Gemma continues to be the core driver for our revenues and for our business and that shouldn't change this year.

Got it. And maybe just you've talked about the debt ceiling bill, so within there, they are talking about the Mountain Valley natural gas pipeline to be expedited just trying to get a sense as to how that might or might not impact Argan?

Yeah, the permitting reform in the Mountain Valley Pipeline or MVP should indirectly be positive for Argan over the long run. The permitting reform should help speed up the development process and the associated costs and should result in gas-fired and renewable project EPC opportunities for us. While the permitting reform does not address transmission lines and pipelines, which it really needs to do, the addition of the Mountain Valley Pipeline is positive, there have been certain developers who have announced projects that in the past are located near it and the opportunity for others to be located along the Mountain Valley Pipeline path makes a whole lot of sense as access to fuel source with minimal additional pipeline infrastructure is key for any gas-fired power plant development. So I see it as a positive for potential customers down the road.

Got it. And maybe just one last final one on cash flow. So cash flow generation, if you guys are often you picks up kind of early in a project sometimes a little access at the end. How should we think about fiscal '24 versus fiscal '23 and Q1 certainly is much stronger than I think it was negative cash flow from operations of $1.2 million negative versus almost $40 million. When you look at -- think about fiscal '24 cash flow from operations, how do you think about it versus that '23 negative $30 million?

That's a tremendous question and our top line cash flow numbers are always difficult to model out because they are very much driven by the contractual terms of our major projects. With the start-up Trumbull, the cash flow has been positive, but keep in mind, we're always making significant commitments on behalf of our customers, but as projects progress towards the later stages, cost and cash outflows are typically greater than cash inflows, which is what we experienced in fiscal '23. So, it depends on the timing of new major project starts this year, where we based off of our visibility do expect new jobs over the course of the year and especially towards the later half of the year and that should result in greater cash balances for Argan overall.

Got it. All right. I will leave it there. I appreciate it.

Thanks Chris.

We have reached the end of the question-and-answer session and I will now turn the call over to David Watson for closing remarks.

Great. Thanks John, and thank you all for participating in today's call. As a reminder, please vote your shares and come join us at our Annual Meeting of Stockholders this June 20th at our Rockville, Maryland offices just outside our nation's capital. So with that, we look forward to speaking with you again when we report our Q2 fiscal 2024 earnings. Have a great evening.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.