AGAN, INC. June 2010 June 2011 December 2018
Safe Harbor Statement All statements in this presentation that are not historical are forwardlooking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements may be identified by words such as believe, intend, expect, may, could, would, will, should, plan, project, contemplate, anticipate, or similar statements. Because these statements reflect the current views of Argan, Inc. ( Argan or the Company ) concerning future events, these forward-looking statements are subject to risks and uncertainties. Argan s actual results could differ materially from those anticipated in these forwardlooking statements as a result of many factors, which are described under the caption Risk Factors in Argan s most recent Form 10-K filed with the Securities and Exchange Commission. Argan undertakes no obligation to update publicly any forward-looking statements contained in this presentation. 2
Company Overview NYSE: AGX Holding company for four 100% controlled subsidiaries Market capitalization (12/03/18) $0.7 billion Solid long term annual rate of return 5yr = 17%* Quarterly dividend $0.25 per share 3 Quarter Ended Trailing Twelve (in millions) October 31, 2018 Months (TTM) Revenues $ 116 $ 564 Net Income* 32 61 EBITDA** 21 64 Strong balance sheet at 10/31/18 No leverage Cash & short-term investments - $315 million Net liquidity - $340 million Project backlog (10/31/18) $0.4 billion * As of 12/3/2018 ** Attributable to the Stockholders of AGX
Business Overview Holding Company 4 Gemma Power Systems ( GPS ) provides engineering, procurement and construction ( EPC ) services to power generation and renewable energy markets The Roberts Company ( TRC ) is principally an industrial steel fabricator and field services provider serving both light and heavy industrial organizations Atlantic Projects Company ( APC ) provides turbine, boiler, large rotating equipment installation, commissioning and outage services to the global power industry SMC Infrastructure Solutions ( SMC ) provides telecommunications data infrastructure services TTM Revenues by Subsidiary 14.8% 15.3% 2.1% 67.8%
$ Millions Revenues* $900 $893 $800 $700 $600 $675 $500 $564 $400 $413 $300 $383 $200 $279 $227 $100 $142 $- 2012 2013 2014 2015 2016 2017 2018 2019** 5 With several major projects projected to be completed in the year ending January 31, 2019, we expect our revenues and several other financial metrics to decrease in Fiscal 2019 compared to Fiscal 2018. ** TTM through October 31, 2018 NOTE: Except where noted otherwise, the years presented throughout this presentation relate to Argan s fiscal year-end, which is January 31.
$ Millions Net Income* $80 $70 $70.3 $72.0 $60 $61.3 $50 $40 $30 $40.1 $30.4 $36.3 $20 $23.3 $10 $- $9.3 2012 2013 2014 2015 2016 2017 2018 2019** 6 * Attributable to the Stockholders of AGX ** TTM through October 31, 2018
$ Millions EBITDA* $120 $100 $110.6 $116.1 CAGR 26% $80 $60 $66.3 $62.9 $64.3 $52.2 $40 $37.7 $20 $12.9 $- 2012 2013 2014 2015 2016 2017 2018 2019** 7 * Attributable to the Stockholders of AGX ** TTM through October 31, 2018
Book Value $30.00 Tangible Book Value* & Cumulative Dividends Per Share $25.00 $6.00 $5.25 $20.00 $4.25 $15.00 $10.00 $1.85 $2.55 $3.25 $20.34 $23.05 $5.00 $0.50 $5.87 $1.10 $7.16 $9.50 $11.29 $11.58 $16.08 $- 2012 2013 2014 2015 2016 2017 2018 Q32019 8 Tangible Book Value Cumulative Dividends *Tangible Book Value = Total Stockholders Equity Goodwill Other Intangible Assets
Financial Results (in thousands, except per share data) October 31, For the Quarter Ended: 2018 2017 Change % Change Revenues $ 116,459 $ 232,945 $ (116,486) (50.0)% Cost of revenues 86,927 195,227 (108,300) (55.5) Gross profit 29,532 37,718 (8,186) (21.7) Gross margins 25.4% 16.2% 9.2% 56.8 Net Income attributable to stockholders of the Company $ 32,434 $ 17,229 $ 15,205 88.3 Diluted per share 2.07 1.09 0.98 89.9 EBITDA attributable to stockholders of the Company 21,025 30,275 (9,250) (30.6) Diluted per share 1.34 1.92 (0.58) (30.2) October 31, January 31, As of: 2018 2018 Change % Change Cash, cash equivalents and short-term investments $ 314,787 $ 434,015 $ (119,228) (27.5)% Net Liquidity (1) 339,616 301,817 37,799 12.5 Project backlog 365,000 379,000 (14,000) (3.7) 9 (1) We define Net Liquidity, or working capital, as our total current assets less our total current liabilities.
Financial Drivers As successful execution by GPS on four large gas-fired power plant projects have reached the final stages, revenues saw a decline during the current quarter. Construction activities for these projects have matured from peak levels to the commissioning, start up and final activities. The decline in revenues at GPS was partially offset by strong revenues at APC and TRC during the third quarter. Gross profits decreased reflecting primarily the reduction in consolidated revenues between periods. Our gross margin percentage increased quarter over quarter, reflecting favorable project close-out adjustments to the gross profits of certain projects that have reached substantial completion. We completed a yearlong detailed review of the activities performed by its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development credits. Based on this review, we booked a $16.5 million tax benefit in the current quarter. The Tax Cuts and Jobs Act had a favorable impact on our tax rate, resulting in an estimated annual effective income tax rate of 28% for the current quarter, compared to 37% for the second quarter last year. Our balance sheet remains strong. As of October 31, 2018, our cash, cash equivalents and short-term investments totaled $315 million and adjusted net liquidity was $340 million; plus, we had no bank debt. 10 Our project backlog was $365 million as of October 31, 2018, slightly down from $379 million at the end of the prior year, mostly due to year-to-date work on existing backlog partially offset by an EPC contract entered into by GPS during the first quarter. As previously reported, we remain encouraged about our project pipeline as GPS has been selected to perform the EPC work for several new power generation facilities with a collective potential project value over $1.5 billion with projected start dates extending through 2019.
Overview of Gemma Power Systems 11 History acquired by Argan in December 2006 for $33 million and has generated cumulative EBITDA since acquisition of over $628 million, or ~19x cash on cash and an IRR in excess of 75% Business engineering, procurement and construction of natural gasfired and alternative power energy facilities throughout the United States Track Record Installed and under-contract capacity for nearly 15,000 MW of mostly domestic power-generating capacity including 65 gas turbines comprising 44 projects Safety Record In seven of the past ten years, Gemma has incurred no lost time injuries and Gemma s OSHA recordable injury rate is significantly below the national average Employees Over 20% of staff employees are veterans Customers Independent power producers and utilities
Significant GPS Current Projects Project (1) Location Size of Facility Date FNTP Scheduled Received (2) Completion Caithness Moxie Freedom Generating Station Pennsylvania 1,040 MW Nov-15 2018 (3) CPV Towantic Energy Center Connecticut 785 MW Mar-16 2018 (3) NTE Middletown Energy Center Ohio 475 MW Oct-15 2018 (3) NTE Kings Mountain Energy Center North Carolina 475 MW Mar-16 2018 (3) Exelon West Medway II Facility Massachusetts 200 MW Apr-17 (4) (1) Although not GPS projects, our APC subsidiary has two significant projects in the United Kingdom: TeesREP Biomass Power Station is a 299 MW facility and InterGen Spalding OCGT Expansion Project is a 298 MW facility, both scheduled to be completed in 2019. In addition, GPS has signed two EPC contracts for projects which have not yet started. (2) Full Notice to Proceed ( FNTP ) represents the formal notice provided by the project owner instructing us to commence the activities covered by the corresponding EPC contract. (3) Substantial completion achieved. (4) Based on the current schedule for this challenging project, the completion date, which was initially targeted for the end of 2018, may move to early 2019. 12
Extensive Project Portfolio 13 Power facilities combined cycle solution Caithness Moxie Freedom Generating Plant CPV Towantic Energy Center NTE Kings Mountain Energy Center NTE Middletown Energy Center Panda Liberty Energy Project Panda Patriot Energy Project Colusa Generating Station Roseville Energy Park Hines PB-2 Power Project Rowan County Power Project Effingham County Power Project Richmond County Phase II Power Project Dighton Power Project Pollution solutions Brayton Point Power Station La Rosita SCR Project Biomass power facilities - Woodville, Texas Solar facilities - Canton, MA - Carver, MA - Beaumont Solar Power facilities simple cycle solution Exelon West Medway II Facility CPV Sentinel Energy Project A.L. Pierce Re-powering Project Vandolah Power Project DeSoto County Power Project Indigo Energy Facility Larkspur Energy Facility Richmond County Phase I Power Monroe Power Project Richland Peaking Project Rocky Road Unit 4 Project Broad River Energy Center Middletown, CT Project Process facilities biodiesel Renewable BioFuels Port Neches Galena Park Green Earth Fuels Houston LLC Process facilities ethanol Carleton Ethanol Facility Wind Facilities - LaSalle County, Illinois - Vantage, Washington - Henry County, Illinois - Ebensburg, Pennsylvania
Construction Services Peer Group Stock 12 Month LTM LTM Return Price Total Market Debt/ LTM Gross EBITDA on Avg. Ticker Company Name 11/2 3 /2 0 18 Return Cap Equity Revenue Margin Margin Equity AGX Argan, Inc. $43.40 % -26.0 % $675.7 0.0 X $680.6 15.3 % 9.8 % 12.8% FLR Fluor Corporation $40.21-13.6 $5,656.3 0.5 $19,392.9 3.7 3.9 7.1 GVA Granite Construction Incorporated $51.38-20.3 $2,409.6 0.3 $3,227.4 11.8 6.9 5.8 JEC Jacobs Engineering Group Inc. $64.69 0.8 $9,203.1 0.4 $14,984.6 18.9 5.8 3.1 KBR KBR, Inc. $17.92-1.6 $2,524.5 0.7 $4,520.0 8.8 6.7 40.5 MDR McDermott International Inc. $7.82-64.8 $1,412.2 1.0 $5,349.8 15.1 12.7 4.1 ORN Orion Group Holdings, Inc. $4.28-44.9 $124.0 0.4 $583.9 12.0 6.0 4.2 TPC Tutor Perini Corporation $18.28-25.1 $914.5 0.5 $4,464.4 9.6 4.6 6.8 PRIM Primoris Services Corporation $23.31-12.4 $1,193.6 0.6 $2,640.8 11.0 7.0 11.9 TSX-SNC SNC-Lavalin Group Inc. $36.95-10.9 $6,487.4 0.7 $8,075.9 19.3 9.7 6.5 STRL Sterling Construction Co. Inc. $12.83-26.8 $347.3 0.5 $1,036.4 10.4 4.4 14.5 Mean -22.3% 0.5x 12.3% 7.1% 10.5% 14 Source: Stifel - Engineering, Construction and Infrastructure Newsletter (11/27/2018)
Investment Summary Consistent strong operational performance Excellent safety record Large bidding pipeline Strong balance sheet - substantial liquidity and no leverage Solid long term annual rate of return 5yr = 17%* Quarterly dividend of $0.25 per share in 2018, for an annual total of $1.00 per share Experienced management team 15 *As of 12/3/2018
Corporate Data Investor Relations Investor Relations 301-315-0027 info@arganinc.com Corporate Headquarters Argan, Inc. One Church Street, Suite 201 Rockville, Maryland 20850 301-315-0027 NYSE Listing Common: AGX Websites Argan, Inc. www.arganinc.com Gemma Power Systems www.gemmapower.com The Roberts Company www.robertscompany.com Atlantic Projects Company www.atlanticprojects.com SMC Infrastructure Solutions www.smcinc.biz 16
Appendix Consolidated Income Statements - Quarter (in thousands except per share amounts) 31-Oct-18 31-Jul-18 Three Months Ended 30-Apr-18 31-Jan-18 31-Oct-17 Revenues $ 116,459 $ 136,670 $ 141,366 $ 169,578 $ 232,945 Cost of revenues 86,927 105,962 125,914 149,474 195,227 Gross Profit 29,532 30,708 15,452 20,104 37,718 Gross Profit % 25.4% 22.5% 10.9% 11.9% 16.2% Impairment loss 584 Selling, general and administrative expenses 11,147 10,378 9,637 11,356 10,119 Income from operations 18,385 20,330 5,815 8,164 27,599 Other income, net 1,429 2,928 764 1,427 1,692 Income before income taxes 19,814 23,258 6,579 9,591 29,291 Income tax (benefit) expense (12,560) 6,314 1,737 2,541 12,062 Net income 32,374 16,944 4,842 7,050 17,229 Net income attributable to noncontrolling interests (60) (28) 5 32 Net income attributable to the stockholders of AGX $ 32,434 $ 16,972 $ 4,837 $ 7,018 $ 17,229 EPS attributable to the stockholders of Argan, Inc. Basic $ 2.08 $ 1.09 $ 0.31 $ 0.45 $ 1.11 Diluted $ 2.07 $ 1.08 $ 0.31 $ 0.45 $ 1.09 Weighted average number of shares outstanding Basic 15,569 15,568 15,568 15,559 15,545 Diluted 15,702 15,673 15,656 15,743 15,793 17 Cash dividends per share $ 0.25 $ 0.25 $ 0.25 $ $ 1.00
Appendix Reconciliations to EBITDA Consolidated Three Months Ended 31-Oct-18 31-Jul-18 30-Apr-18 31-Jan-18 31-Oct-17 Net income $ 32,374 $ 16,944 $ 4,842 $ 7,050 $ 17,229 Less EBITDA attributable to noncontrolling interests 60 28 (5) (32) Interest expense 110 549 Income tax (benefit) expense (12,560) 6,314 1,737 2,541 12,062 Depreciation 898 796 771 843 726 Amortization of purchased intangible assets 253 253 253 256 258 EBITDA attributable to the stockholders of Argan, Inc. $ 21,025 $ 24,445 $ 8,147 $ 10,658 $ 30,275 EBITDA per diluted share $ 1.34 $ 1.56 $ 0.52 $ 0.68 $ 1.92 18
Appendix Consolidated Balance Sheets - Assets (dollars in thousands) ASSETS October 31, 2018 January 31, 2018 CURRENT ASSETS Cash and cash equivalents $ 155,791 $ 122,107 Short-term investments 158,996 311,908 Accounts receivable, net 43,612 24,756 Contract assets 55,628 13,847 Other current assets 25,465 12,410 TOTAL CURRENT ASSETS 439,492 485,028 Property, plant and equipment, net 19,866 15,299 Goodwill 34,329 34,329 Other purchased intangible assets, net 6,390 7,149 Deferred taxes 315 439 Other assets 377 426 TOTAL ASSETS $ 500,769 $ 542,670 19
Appendix Consolidated Balance Sheets Liabilities and Equity (dollars in thousands) LIABILITIES AND EQUITY October 31, 2018 January 31, 2018 CURRENT LIABILITIES Accounts payable $ 64,987 $ 100,238 Accrued expenses 25,111 35,360 Contract liabilities 9,778 47,613 TOTAL CURRENT LIABILITIES 99,876 183,211 Deferred taxes 1,388 1,293 TOTAL LIABILITIES 101,264 184,504 20 STOCKHOLDERS EQUITY Common stock 2,336 2,336 Additional paid-in capital 144,507 143,215 Retained earnings 253,716 211,150 Accumulated other comprehensive (loss) income (942) 1,422 TOTAL STOCKHOLDERS EQUITY 399,617 358,123 Noncontrolling interests (112) 43 TOTAL EQUITY 399,505 358,166 TOTAL LIABILITIES AND EQUITY $ 500,769 $ 542,670