UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly Period Ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT |
For the Transition Period from to
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
| ||
(State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(
(Registrant’s Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed since Last Report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 (the "Exchange Act”) during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer,” "accelerated filer”, "smaller reporting company” and "emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Title of Each Class |
| Trading Symbol(s) |
| Name of Each Exchange on Which Registered |
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of the latest practicable date.
Common stock, $0.15 par value:
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||
July 31, | July 31, | ||||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | ||||||
REVENUES | $ | | $ | | $ | | $ | | |||||
Cost of revenues |
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GROSS PROFIT |
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Selling, general and administrative expenses |
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INCOME FROM OPERATIONS |
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Other income, net |
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INCOME BEFORE INCOME TAXES |
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Income tax expense |
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NET INCOME |
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Foreign currency translation adjustments | ( | ( | | ( | |||||||||
Net unrealized losses on available-for-sale securities | ( | — | ( | — | |||||||||
COMPREHENSIVE INCOME | $ | | $ | | $ | | $ | | |||||
NET INCOME PER SHARE | |||||||||||||
Basic | $ | | $ | | $ | | $ | | |||||
Diluted | $ | | $ | | $ | | $ | | |||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | |||||||||||||
Basic |
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Diluted |
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CASH DIVIDENDS PER SHARE | $ | | $ | | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
| July 31, |
| January 31, | |||
| 2023 |
| 2023 | |||
(Unaudited) | (Note 1) | |||||
ASSETS | ||||||
CURRENT ASSETS | ||||||
Cash and cash equivalents | $ | | $ | | ||
Investments | | | ||||
Accounts receivable, net |
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Contract assets |
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Other current assets |
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TOTAL CURRENT ASSETS |
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Property, plant and equipment, net |
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Goodwill |
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Intangible assets, net | | | ||||
Deferred taxes, net | | | ||||
Right-of-use and other assets | | | ||||
TOTAL ASSETS | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||
CURRENT LIABILITIES | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses |
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Contract liabilities |
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TOTAL CURRENT LIABILITIES |
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Noncurrent liabilities | | | ||||
TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (see Notes 7 and 8) | ||||||
STOCKHOLDERS’ EQUITY | ||||||
Preferred stock, par value $ |
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Common stock, par value $ |
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Additional paid-in capital |
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Retained earnings |
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Less treasury stock, at cost – | ( | ( | ||||
Accumulated other comprehensive loss | ( | ( | ||||
TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND SIX MONTHS ENDED JULY 31, 2023 AND 2022
(Dollars in thousands)
(Unaudited)
Common Stock | Additional | Accumulated | |||||||||||||||||||||
| Outstanding |
| Par |
| Paid-in |
| Retained |
| Treasury |
| Other Comprehensive |
| Non-controlling |
| Total | ||||||||
Shares | Value | Capital | Earnings | Stock | Loss | Interest | Equity | ||||||||||||||||
Balances, May 1, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | — | $ | | |||||||
Net income |
| — | — | — | | — | — | — | | ||||||||||||||
Foreign currency translation loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Net unrealized losses on available-for-sale securities | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Stock option exercises and other share-based award settlements |
| | — | ( | — | | — | — | | ||||||||||||||
Common stock repurchases | ( | — | — | — | ( | — | — | ( | |||||||||||||||
Cash dividends |
| — | — | — | ( | — | — | — | ( | ||||||||||||||
Balances, July 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | — | $ | | |||||||
Balances, May 1, 2022 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Net income | — | — | — | | — | — | — | | |||||||||||||||
Foreign currency translation loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Common stock repurchases |
| ( | — | — | — | ( | — | — | ( | ||||||||||||||
Cash dividends | — | — | — | ( | — | — | — | ( | |||||||||||||||
Balances, July 31, 2022 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Balances, February 1, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | — | $ | | |||||||
Net income |
| — | — | — | | — | — | — | | ||||||||||||||
Foreign currency translation gain | — | — | — | — | — | | — | | |||||||||||||||
Net unrealized losses on available-for-sale securities | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Stock option exercises and other share-based award settlements |
| | — | ( | — | | — | — | | ||||||||||||||
Common stock repurchases | ( | — | — | — | ( | — | — | ( | |||||||||||||||
Cash dividends |
| — | — | — | ( | — | — | — | ( | ||||||||||||||
Balances, July 31, 2023 |
| | $ | | $ | | $ | | $ | ( | $ | ( | $ | — | $ | | |||||||
Balances, February 1, 2022 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | | ||||||||
Net income | — | — | — | | — | — | — | | |||||||||||||||
Foreign currency translation loss | — | — | — | — | — | ( | — | ( | |||||||||||||||
Stock compensation expense | — | — | | — | — | — | — | | |||||||||||||||
Stock option exercises and other share-based award settlements | | | | — | — | — | — | | |||||||||||||||
Common stock repurchases | ( | — | — | — | ( | — | — | ( | |||||||||||||||
Cash dividends | — | — | — | ( | — | — | — | ( | |||||||||||||||
Balances, July 31, 2022 | | $ | | $ | | $ | | $ | ( | $ | ( | $ | ( | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ARGAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
| Six Months Ended July 31, | |||||
| 2023 |
| 2022 | |||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash used in operating activities | ||||||
Stock compensation expense | | | ||||
Depreciation | | | ||||
Lease expense |
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Changes in accrued interest on investments | ( | ( | ||||
Deferred income tax (benefit) expense | ( | | ||||
Amortization of intangible assets |
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Equity in loss (income) of solar energy investments | | ( | ||||
Other |
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Changes in operating assets and liabilities | ||||||
Accounts receivable |
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Contract assets | | ( | ||||
Other assets |
| ( |
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Accounts payable and accrued expenses |
| ( |
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Contract liabilities | | ( | ||||
Net cash provided by (used in) operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Purchases of short-term investments | ( | ( | ||||
Maturities of short-term investments | | | ||||
Purchases of available-for-sale securities | ( | — | ||||
Purchases of property, plant and equipment |
| ( |
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Net cash provided by (used in) investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Common stock repurchases | ( | ( | ||||
Payments of cash dividends |
| ( |
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Proceeds from the exercise of stock options |
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Net cash used in financing activities |
| ( |
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EFFECTS OF EXCHANGE RATE CHANGES ON CASH | | ( | ||||
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | | | ||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | | $ | | ||
SUPPLEMENTAL CASH FLOW INFORMATION (see Notes 7 and 10) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ARGAN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 31, 2023
(Tabular dollar amounts in thousands, except per share data)
(Unaudited)
NOTE 1 – DESCRIPTION OF THE BUSINESS AND BASIS OF PRESENTATION
Description of the Business
Argan, Inc. ("Argan”) conducts operations through its wholly-owned subsidiaries, Gemma Power Systems, LLC and affiliates ("GPS”); The Roberts Company, Inc. ("TRC”); Atlantic Projects Company Limited and affiliates ("APC”) and Southern Maryland Cable, Inc. ("SMC”). Argan and these consolidated subsidiaries are hereinafter collectively referred to as the "Company.”
Through GPS and APC, the Company provides a full range of engineering, procurement, construction, commissioning, maintenance, project development, and technical consulting services to the power generation market. The wide range of customers includes primarily independent power producers, public utilities, power plant equipment suppliers and other commercial firms with significant power requirements with customer projects located in the United States (the "U.S.”), the Republic of Ireland ("Ireland”) and the United Kingdom (the "U.K.”). GPS and APC represent the Company’s power industry services reportable segment. Through TRC, the industrial construction services reportable segment provides on-site services that support new plant construction and additions, maintenance turnarounds, shutdowns and emergency mobilizations for industrial operations primarily located in the Southeast region of the U.S. and that may include the fabrication, delivery and installation of steel components such as piping systems and pressure vessels. Through SMC, which conducts business as SMC Infrastructure Solutions, the telecommunications infrastructure services segment provides project management, construction, installation and maintenance services to commercial, local government and federal government customers primarily in the Mid-Atlantic region of the U.S.
Basis of Presentation and Significant Accounting Policies
The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and a variable interest entity ("VIE”) prior to its deconsolidation in the fourth quarter of the year ended January 31, 2023. All significant inter-company balances and transactions have been eliminated in consolidation. In Note 14, the Company has provided certain financial information relating to the operating results and assets of its reportable segments based on the manner in which management disaggregates the Company’s financial reporting for purposes of making internal operating decisions.
The Company’s fiscal year ends on January 31 each year. The condensed consolidated balance sheet as of July 31, 2023, the condensed consolidated statements of earnings and stockholders’ equity for the three and six months ended July 31, 2023 and 2022, and the condensed consolidated statements of cash flows for the six months ended July 31, 2023 and 2022 are unaudited. The condensed consolidated balance sheet as of January 31, 2023 has been derived from audited consolidated financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP”) have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements, the notes thereto, and the independent registered public accounting firm’s report thereon, that are included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023 ("Fiscal 2023”).
In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary for a fair statement of the financial position of the Company as of July 31, 2023, and its earnings and cash flows for the interim periods presented. The results of operations for any interim period are not necessarily indicative of the results of operations for any other interim period or for a full fiscal year.
6
Recently Issued Accounting Pronouncements
In March 2023, the Financial Accounting Standards Board (the "FASB”) issued Accounting Standards Update ("ASU”) 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method ("ASU 2023-02”), which provides an election to account for tax equity investments using the proportional amortization method, if certain conditions are met. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of the tax credits and other tax benefits received and presented net as a component of income tax expense. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company’s investments in energy tax credit structures entered into prior to Fiscal 2023 do not qualify for the proportional amortization method under this guidance.
There are no other recently issued accounting pronouncements that have not yet been adopted that the Company considers material to its condensed consolidated financial statements.
Available-For-Sale Securities
At each balance sheet date, available-for-sale ("AFS”) securities are recorded at fair value, with unrealized gains and losses, net of income taxes, reported as a component of accumulated other comprehensive loss. Interest income, accretion of discounts, amortization of premiums, realized gains and losses are included in other income or expense, as applicable, in the Company’s condensed consolidated statement of earnings. The Company determines the cost of securities sold based on the specific identification method. The Company determines the appropriate classification of AFS securities based on whether they represent the investment of cash available for current operations, as defined in Accounting Standards Codification ("ASC”) 210-10-45-1 and ASC 210-10-45-2. The classification of the AFS securities is reevaluated at each balance sheet date.
The Company evaluates whether a decline in the fair value of AFS securities below amortized cost basis is credit-related or due to other factors. If the Company intends to sell the AFS security or it is more likely than not the Company would be required to sell the AFS security before recovery, impairment is recognized in earnings with a corresponding adjustment to the security’s amortized cost basis. If a portion of the unrealized loss is credit-related, the impairment is recorded as an allowance on the balance sheet with a corresponding adjustment to earnings. Credit recovery is recorded as an adjustment to the allowance and earnings in the period in which credit conditions improve.
Fair Values
ASC Topic 820, Fair Value Measurement, establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and to minimize the use of unobservable inputs when measuring fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy prioritizes the inputs into three levels that may be used to measure fair value:
Level 1 – Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs are quoted prices for similar assets or liabilities in active markets; or quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3 – Inputs are unobservable inputs based on a company’s own assumptions.
At July 31, 2023 and January 31, 2023, certain amounts of cash equivalents were invested in a money market fund with net assets invested in high-quality money market instruments. The money market fund was classified as Level 1 due to the short-term nature of these instruments and as their fair value is based on quoted prices in active markets for identical assets. As of July 31, 2023, all of the Company’s available-for-sale securities were U.S. Treasury notes and were classified as Level 2, as their fair value is measured based on quoted prices in active markets for similar assets. As of July 31, 2023 and January 31, 2023, the Company did not have any financial assets measured on a recurring basis using Level 3 inputs. The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s other current assets, including cash, certificates of deposit ("CDs”), accounts receivable and contract assets, and its current liabilities are reasonable estimates of their fair values due to the short-term nature of these items.
7
The following table shows the Company’s financial instruments as of July 31, 2023 and January 31, 2023 that are measured and recorded at fair value on a recurring basis:
July 31, 2023 | January 31, 2023 | |||||||||||||||||
Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |||||||||||||
| Inputs |
| Inputs | Inputs |
| Inputs | Inputs |
| Inputs | |||||||||
Money market fund | $ | | $ | — | $ | — | $ | | $ | — | $ | — | ||||||
Available-for-sale securities | — | | — | — | — | — | ||||||||||||
Totals | $ | | $ | | $ | — | $ | | $ | — | $ | — |
Treasury Stock
Treasury stock is recorded using the cost method. Incremental direct costs to purchase treasury stock, including excise tax, are included in the cost of the shares acquired. The Company uses the average cost method to account for treasury stock. For treasury stock provided for settlements or sold at a price higher than its cost, the gain is recorded to additional paid-in capital. For treasury stock provided for settlements or sold at a price lower than its cost, the loss is recorded to additional paid-in capital to the extent there are previous net gains included in additional paid-in capital. Any losses in excess of that amount are recorded to retained earnings.
NOTE 2 – REVENUES FROM CONTRACTS WITH CUSTOMERS
The Company’s accounting for revenues on contracts with customers is based on a single comprehensive five-step model that requires reporting entities to:
1. | Identify the contract, |
2. | Identify the performance obligations of the contract, |
3. | Determine the transaction price of the contract, |
4. | Allocate the transaction price to the performance obligations, and |
5. | Recognize revenue. |
The Company focuses on the transfer of the contractor’s control of the goods and/or services to the customer. When a performance obligation is satisfied over time, the related revenues are recognized over time. The Company’s revenues are recognized primarily under various types of long-term construction contracts, including those for which revenues are based on either a fixed-price or a time-and-materials basis, and primarily over time as performance obligations are satisfied due to the continuous transfer of control to the project owner or other customer.
Revenues from fixed-price contracts, including portions of estimated gross profit, are recognized as services are provided, based on costs incurred and estimated total contract costs using the cost-to-cost approach. If, at any time, the estimate of contract profitability indicates an anticipated loss on a contract, the Company will recognize the total loss in the reporting period in which it is identified and the loss amount becomes estimable. Revenues from time-and-materials contracts are recognized when the related services are provided to the customer.
Predominantly all of the Company’s fixed-price contracts are considered to have a single performance obligation. Although multiple promises to transfer individual goods or services may exist, they are not typically distinct within the context of such contracts because contract promises included therein are interrelated or the contracts require the Company to perform critical integration so that the customer receives a completed project. Warranties provided under the Company’s contracts with customers are assurance-type primarily and are recorded as the corresponding contract work is performed.
The transaction price for a customer contract represents the value of the contract awarded to the Company that is used to determine the amount of revenues recognized as of the balance sheet date. It may reflect amounts of variable consideration which could be either increases or decreases to the transaction price. These adjustments can be made from time-to-time during the period of contract performance as circumstances evolve related to such items as changes in the scope and price of contracts, claims, incentives and liquidated damages.
The Company’s timing of revenue recognition may not be consistent with its rights to bill and collect cash from project owners and other customers. Most contracts require payments as the corresponding work progresses that are determined in the manner described therein. Those rights are generally dependent upon advance billing terms, milestone billings based
8
on the completion of certain phases of work or when services are performed. On most of the Company’s large contracts, milestone billings that occur early in the corresponding contract terms typically are made in advance of certain significant and related costs being incurred. This results in typically larger contract liability balances early in contract lives that decline over the terms of the corresponding contracts. During the six months ended July 31, 2023 and 2022, there were no unusual or one-time adjustments to contract liabilities.
The balances of the Company’s accounts receivable represent amounts billed to customers that have yet to be collected and represent an unconditional right to receive cash from its customers. Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the customer, with the rights conditional upon something other than the passage of time. Contract liabilities include amounts that reflect obligations to provide goods or services for which payment has been received. The amounts of revenues recognized during the six months ended July 31, 2023 and 2022, that were included in the balances of contract liabilities as of January 31, 2023 and 2022, respectively, were approximately $
Contract retentions are billed amounts which, pursuant to the terms of the applicable contract, are not paid by customers until a defined phase of a contract or project has been completed and accepted. These retained amounts are reflected in contract assets or contract liabilities depending on the net contract position of the particular contract. Retention amounts and the length of retention periods may vary. Retainage amounts related to active contracts are considered current regardless of the term of the applicable contract; such amounts are generally collected by the completion of the applicable contract. The amounts retained by project owners and other customers under construction contracts at July 31, 2023 and January 31, 2023 were $
Variable Consideration
Amounts for unapproved change orders for which the Company has project-owner directive for additional work or other scope change, but not for the price associated with the corresponding additional effort, are included in the transaction price when it is considered probable that the applicable costs will be recovered through a modification to the contract price. The effects of any revision to a transaction price can be determined at any time and they could be material. The Company also includes in the corresponding transaction price an estimate of the amount that it expects to receive from a claim based on management’s judgment regarding all reasonably available information. Once a final amount has been determined, the transaction price may be revised again to reflect the final resolution. At July 31, 2023 and January 31, 2023, the aggregate amounts of such unapproved change orders included in the transaction prices that were still pending customer approval were $
The Company’s long-term contracts typically have schedule dates and other performance objectives that if not achieved could subject the Company to liquidated damages. These contract requirements generally relate to specified activities that must be completed by an established date or by the achievement of a specified level of output or efficiency. Each applicable contract defines the conditions under which a project owner may be entitled to any liquidated damages. At the outset of each of the Company’s contracts, the potential amounts of liquidated damages typically are not subtracted from the transaction price as the Company believes that it has included activities in its contract plan, and the associated forecasted contract costs, that will be effective in preventing such damages. Of course, circumstances may change as the Company executes the corresponding contract. The transaction price is reduced by an applicable amount when the Company no longer considers it probable that a future reversal of revenues will not occur when the matter is resolved. The Company considers potential liquidated damages, the costs of other related items and potential mitigating factors in determining the adequacy of its regularly updated estimates of the amounts of gross profit expected to be earned on active projects.
In other cases, the Company may have the grounds to assert liquidated damages against subcontractors, suppliers, project owners or other parties related to a project. Such circumstances may arise when the Company’s activities and progress are adversely affected by delayed or damaged materials, challenges with equipment performance or other events out of the
9
Company’s control where the Company has rights to recourse, typically in the form of liquidated damages. In general, the Company does not adjust the corresponding contract accounting until it is probable that the favorable cost relief will be realized. Such adjustments have been and could be material.
The Company records adjustments to revenues and profits on contracts, including those associated with contract variations and estimated cost changes, using a cumulative catch-up method. Under this method, the impact of an adjustment to the amount of revenues recognized to date is recorded in the period that the adjustment is identified. Estimated variable consideration amounts are determined by the Company based primarily on the single most likely amount in the range of possible consideration amounts. Revenues and profits in future periods of contract performance are recognized using the adjusted amounts of transaction price and estimated contract costs.
Remaining Unsatisfied Performance Obligations ("RUPO”)
Substantially all of the Company’s customer contracts include the right for customers to terminate contracts for convenience. The value of future work the Company is contractually obligated to perform pursuant to active customer contracts should not be included in the disclosure of RUPO when the corresponding contracts include termination for convenience clauses without substantial penalties accruing to the customers upon such terminations. Management assesses whether the nature of the work being performed under contract is largely service-based and repetitive and should be considered a succession of one-month contracts for the duration of the identified term of the contract. Predominantly, the Company’s customers contract with the Company to construct assets, to fabricate materials or to perform emergency maintenance or outage services where management believes substantial penalties or costs would be incurred upon a termination for convenience including the costs of terminating subcontracts, canceling purchase orders and returning or otherwise disposing of delivered materials and equipment. The value of RUPO on customer contracts represents amounts based on contracts or orders received from customers that the Company believes are firm and where the parties are acting in accordance with their respective obligations. The cancellation or termination of contracts for the convenience of customers has not had a material adverse effect on our consolidated financial statements.
At July 31, 2023, the Company had RUPO of $
It is important to note that estimates may be changed in the future and that cancellations, deferrals, or scope adjustments may occur related to work included in the amount of RUPO at July 31, 2023. Accordingly, RUPO may be adjusted to reflect project delays and cancellations, revisions to project scope and cost and foreign currency exchange fluctuations, or to revise estimates, as effects become known. Such adjustments to RUPO may materially reduce future revenues below Company estimates.
Disaggregation of Revenues
The following table presents consolidated revenues for the three and six months ended July 31, 2023 and 2022, disaggregated by the geographic area where the corresponding projects were located:
| Three Months Ended July 31, |
| Six Months Ended July 31, | ||||||||||
2023 |
| 2022 | 2023 |
| 2022 | ||||||||
United States | $ | | $ | | $ | | $ | | |||||
Republic of Ireland |
| |
| |
| |
| | |||||
United Kingdom |
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| |
| |
| | |||||
Consolidated Revenues | $ | | $ | | $ | | $ | |
The major portions of the Company’s consolidated revenues are recognized pursuant to fixed-price contracts with most of the remaining portions earned pursuant to time-and-material contracts. Consolidated revenues are disaggregated by reportable segment in Note 14 to the condensed consolidated financial statements.
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NOTE 3 – CASH, CASH EQUIVALENTS AND INVESTMENTS
Cash and Cash Equivalents
The Company considers all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. At July 31, 2023 and January 31, 2023, certain amounts of cash equivalents were invested in a money market fund with net assets invested in high-quality money market instruments. Such investments include U.S. Treasury obligations; obligations of U.S. government agencies, authorities, instrumentalities or sponsored enterprises; and repurchase agreements secured by U.S. government obligations. Dividend income related to money market investments is recorded when earned. The balances of accrued dividends at July 31, 2023 and January 31, 2023 were $
Investments
The Company’s investments consisted of the following as of July 31, 2023 and January 31, 2023:
| July 31, | January 31, | ||||
2023 |
| 2023 | ||||
Short-term investments | $ | | $ | | ||
Available-for-sale securities | | — | ||||
Total investments | $ | | $ | |
Short-Term Investments
Short-term investments as of July 31, 2023 and January 31, 2023 consisted solely of CDs with weighted average maturities of
Available-For-Sale Securities
AFS securities as of July 31, 2023 consisted solely of U.S. Treasury notes with original maturities of
July 31, 2023 | |||||||||||||||
Allowance for | Gross | Gross | Estimated | ||||||||||||
Amortized | Credit | Unrealized | Unrealized | Fair | |||||||||||
| Cost |
| Losses |
| Gains |
| Losses |
| Value | ||||||
U.S. Treasury notes: | |||||||||||||||
Due in one to two years | $ | | $ | — | $ | — | $ | | $ | | |||||
Due in two to three years | | — | — | | | ||||||||||
Totals | $ | | $ | — | $ | — | $ | | $ | |
As of July 31, 2023, interest receivable in the amount of $
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Concentration Risk
The Company has a substantial portion of its cash on deposit in the U.S. with the Bank and invested in a money market fund. The Company also maintains certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the U.K. in support of the operations of APC. Management does not believe that the combined amount of the CDs and the cash deposited with the Bank, cash invested in the money market fund, and cash balances maintained at financial institutions in Ireland and the U.K., in excess of government-insured levels, represent material risks.
NOTE 4 – ACCOUNTS RECEIVABLE
The Company generally extends credit to a customer based on an evaluation of the customer’s financial condition, without requiring tangible collateral. Customer payments on other construction, fabrication and field service contracts are generally due within 30 to 60 days of billing, depending on the negotiated terms of the corresponding contract. Exposure to losses on accounts and notes receivable is expected to differ due to the varying financial condition of each customer. The Company monitors its exposure to credit losses and may establish an allowance for credit losses based on management’s estimate of the loss that is expected to occur over the remaining life of the particular financial asset. The amounts of the provision for credit losses for the three and six months ended July 31, 2023 and 2022 were insignificant. The allowance for credit losses at July 31, 2023 and January 31, 2023 was $
NOTE 5 – INTANGIBLE ASSETS
At both July 31, 2023 and January 31, 2023, the goodwill balances related primarily to the GPS and TRC reporting units, and were $
The Company’s intangible assets, other than goodwill, relate primarily to the industrial construction services segment and consisted of the following as of July 31, 2023 and January 31, 2023:
July 31, 2023 | January 31, 2023 | |||||||||||||||||||
Estimated | Gross | Accumulated | Net | Gross | Accumulated | Net | ||||||||||||||
| Useful Life |
| Amounts |
| Amortization |
| Amounts |
| Amounts |
| Amortization |
| Amounts | |||||||
Trade names | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
Customer relationships | | | | | | | ||||||||||||||
Totals | $ | | $ | | $ | | $ | | $ | | $ | |
NOTE 6 – FINANCING ARRANGEMENTS
During April 2021, the Company amended its Amended and Restated Replacement Credit Agreement with the Bank (the "Credit Agreement”) which extended the expiration date of the Credit Agreement to May 31, 2024 and reduced the borrowing rate. On March 6, 2023, the Company entered into the Second Amendment (the "Second Amendment”) to the Credit Agreement. The Second Amendment modified the Credit Amendment, primarily, to replace the interest pricing with the Secured Overnight Financing Rate ("SOFR”) plus
At July 31, 2023 and January 31, 2023, the Company did not have any borrowings outstanding under the Credit Agreement. However, the Bank has issued letters of credit in the total outstanding amount of $
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The Company has pledged the majority of its assets to secure its financing arrangements. The Bank’s consent is not required for acquisitions, divestitures, cash dividends or significant investments as long as certain conditions are met. The Credit Agreement requires that the Company comply with certain financial covenants at its fiscal year-end and at each fiscal quarter-end. The Credit Agreement, as amended, includes other terms, covenants and events of default that are customary for a credit facility of its size and nature, including a requirement to achieve positive adjusted earnings before interest, taxes, depreciation and amortization, as defined, over each rolling twelve-month measurement period. As of July 31, 2023 and January 31, 2023, the Company was in compliance with the covenants of the Credit Agreement, as amended.
NOTE 7 – COMMITMENTS
Leases
The Company’s leases are primarily operating leases that cover office space, expiring on various dates through December 2031, and certain equipment used by the Company in the performance of its construction services contracts. Some of these equipment leases may be embedded in broader agreements with subcontractors or construction equipment suppliers. The Company has no material finance leases. None of the operating leases includes significant amounts for incentives, rent holidays or price escalations. Under certain leases, the Company is obligated to pay property taxes, insurance, and maintenance costs. For leases that contain both lease and non-lease components, fixed and variable payments are allocated to each component relative to observable or estimated standalone prices.
Operating lease right-of-use assets and associated lease liabilities are recorded in the balance sheet at the lease commencement date based on the present value of future minimum lease payments to be made over the expected lease term. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate at the commencement date in determining the present value of future payments. The expected lease term includes any
Operating lease expense amounts are recorded on a straight-line basis over the expected lease terms. Operating lease expenses for the three and six months ended July 31, 2023 were $
The following is a schedule of future minimum lease payments for the operating leases that were recognized in the condensed consolidated balance sheet as of July 31, 2023:
Years Ending January 31, | |||
2024 (remainder) |
| $ | |
2025 | | ||
2026 | | ||
2027 | | ||
2028 | | ||
Thereafter | | ||
Total lease payments | | ||
Less imputed interest | | ||
Present value of lease payments | | ||
| |||
$ | |
For operating leases as of July 31, 2023, the weighted average lease term and weighted average discount rate were
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The Company also uses equipment and occupies other facilities under short-term rental agreements. The Company classifies as short-term leases any lease with an initial noncancellable term of twelve months or less that does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Rent expense amounts incurred under short-term rentals during the three and six months ended July 31, 2023 were $
Performance Bonds and Guarantees
In the normal course of business and for certain major projects, the Company may be required to obtain surety or performance bonding, to cause the issuance of letters of credit, or to provide parent company guarantees (or some combination thereof) in order to provide performance assurances to clients on behalf of its contractor subsidiaries. As these subsidiaries are wholly-owned, any actual liability is ordinarily reflected in the financial statement account balances determined pursuant to the Company’s accounting for contracts with customers. When sufficient information about claims on guaranteed or bonded projects would be available and monetary damages or other costs or losses would be determined to be probable, the Company would record such losses. Any such amounts that may be required to be paid in excess of the estimated costs to complete contracts in progress as of July 31, 2023 are not estimable.
As of July 31, 2023 and January 31, 2023, the estimated amounts of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, were approximately $
The Company also provided a financial guarantee, subject to certain terms and conditions, in the amount of $
Warranties
The Company generally provides assurance-type warranties for work performed under its construction contracts. The warranties cover defects in equipment, materials, design or workmanship, and most warranty periods typically run from
to after the completion of construction on a particular project. Because of the nature of the Company’s projects, including project owner inspections of the work both during construction and prior to substantial completion, the Company has not experienced material unexpected warranty costs in the past. Warranty costs are estimated based on experience with the type of work and any known risks relative to each completed project. The accruals of liabilities, which are established to cover estimated future warranty costs, are recorded as the contracted work is performed, and they are included in the amounts of accrued expenses in the condensed consolidated balances sheets. The liability amounts may be periodically adjusted to reflect changes in the estimated size and number of expected warranty claims.NOTE 8 – LEGAL CONTINGENCIES
In the normal course of business, the Company may have pending claims and legal proceedings. In the opinion of management, based on information available at this time, there are no current claims and proceedings that are expected to have a material adverse effect on the condensed consolidated financial statements as of July 31, 2023.
NOTE 9 – STOCK-BASED COMPENSATION
On June 23, 2020, the Company’s stockholders approved the adoption of the 2020 Stock Plan (the "2020 Plan”), and the allocation of
The features of the 2020 Plan are similar to those included in the 2011 Plan. Awards may include nonqualified stock options, incentive stock options, and restricted or unrestricted stock. The specific provisions for each award are documented in a written agreement between the Company and the awardee. All stock options awarded under the Stock
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Plans have exercise prices per share at least equal to the market value per share of the Company’s common stock on the date of grant. Stock options have terms no longer than
As of July 31, 2023, there were
Stock Options
A summary of stock option activity under the Stock Plans for the six months ended July 31, 2023, along with corresponding weighted average per share amounts, is presented below (shares in thousands):