View Filing Data for SEC filing 0001558370-23-015513

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended

July 31, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT

For the Transition Period from to

Commission File Number 001-31756

(Exact Name of Registrant as Specified in Its Charter)


Delaware		13-1947195
(State or Other Jurisdiction of Incorporation)		(I.R.S. Employer Identification No.)

One Church Street, Suite 201, Rockville, Maryland 20850

(Address of Principal Executive Offices) (Zip Code)

(301) 315-0027

(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. Yes þ No ☐

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). Yes þ No ☐

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 ☐ Accelerated filer þ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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 ☐ No ☑


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.15 par value	AGX	New York Stock Exchange

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: 13,318,653 shares as of September 1, 2023.

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	$	141,349	$	118,110	$	245,024	$	218,387
Cost of revenues		117,607		93,723		207,058		174,262
GROSS PROFIT		23,742		24,387		37,966		44,125
Selling, general and administrative expenses		10,501		10,984		21,092		21,559
INCOME FROM OPERATIONS		13,241		13,403		16,874		22,566
Other income, net		4,118		505		3,489		1,100
INCOME BEFORE INCOME TAXES		17,359		13,908		20,363		23,666
Income tax expense		4,592		9,686		5,487		11,959
NET INCOME		12,767		4,222		14,876		11,707
Foreign currency translation adjustments		(185)		(687)		255		(1,951)
Net unrealized losses on available-for-sale securities		(683)		—		(720)		—
COMPREHENSIVE INCOME	$	11,899	$	3,535	$	14,411	$	9,756

NET INCOME PER SHARE
Basic	$	0.95	$	0.30	$	1.11	$	0.81
Diluted	$	0.94	$	0.30	$	1.10	$	0.80

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic		13,403		14,134		13,408		14,516
Diluted		13,542		14,247		13,544		14,616

CASH DIVIDENDS PER SHARE	$	0.25	$	0.25	$	0.50	$	0.50

The accompanying notes are an integral part of these condensed consolidated financial statements.

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	$	204,799	$	173,947
Investments		141,616		151,511
Accounts receivable, net		44,532		50,132
Contract assets		20,747		24,778
Other current assets		43,438		38,334
TOTAL CURRENT ASSETS		455,132		438,702
Property, plant and equipment, net		10,457		10,430
Goodwill		28,033		28,033
Intangible assets, net		2,413		2,609
Deferred taxes, net		3,910		3,689
Right-of-use and other assets		5,763		6,024
TOTAL ASSETS	$	505,708	$	489,487

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable	$	31,530	$	56,375
Accrued expenses		67,620		49,867
Contract liabilities		116,456		96,261
TOTAL CURRENT LIABILITIES		215,606		202,503
Noncurrent liabilities		5,066		6,087
TOTAL LIABILITIES		220,672		208,590

COMMITMENTS AND CONTINGENCIES (see Notes 7 and 8)

STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share – 500,000 shares authorized; no shares issued and outstanding		—		—
Common stock, par value $0.15 per share – 30,000,000 shares authorized; 15,828,289 shares issued;13,353,653 and 13,441,590 shares outstanding at July 31, 2023 and January 31, 2023, respectively		2,374		2,374
Additional paid-in capital		162,323		162,208
Retained earnings		216,009		207,832
Less treasury stock, at cost – 2,474,636 and 2,386,699 shares at July 31, 2023 and January 31, 2023, respectively		(92,329)		(88,641)
Accumulated other comprehensive loss		(3,341)		(2,876)
TOTAL STOCKHOLDERS’ EQUITY		285,036		280,897
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	505,708	$	489,487

The accompanying notes are an integral part of these condensed consolidated financial statements.

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	13,414,404	$	2,374	$	161,347	$	206,584	$	(89,883)	$	(2,473)	$	—	$	277,949
Net income	—		—		—		12,767		—		—		—		12,767
Foreign currency translation loss	—		—		—		—		—		(185)		—		(185)
Net unrealized losses on available-for-sale securities	—		—		—		—		—		(683)		—		(683)
Stock compensation expense	—		—		1,184		—		—		—		—		1,184
Stock option exercises and other share-based award settlements	16,381		—		(208)		—		611		—		—		403
Common stock repurchases	(77,132)		—		—		—		(3,057)		—		—		(3,057)
Cash dividends	—		—		—		(3,342)		—		—		—		(3,342)
Balances, July 31, 2023	13,353,653	$	2,374	$	162,323	$	216,009	$	(92,329)	$	(3,341)	$	—	$	285,036

Balances, May 1, 2022	14,585,908	$	2,374	$	159,170	$	192,463	$	(47,482)	$	(3,715)	$	(797)	$	302,013
Net income	—		—		—		4,222		—		—		—		4,222
Foreign currency translation loss	—		—		—		—		—		(687)		—		(687)
Stock compensation expense	—		—		1,059		—		—		—		—		1,059
Common stock repurchases	(701,713)		—		—		—		(26,091)		—		—		(26,091)
Cash dividends	—		—		—		(3,480)		—		—		—		(3,480)
Balances, July 31, 2022	13,884,195	$	2,374	$	160,229	$	193,205	$	(73,573)	$	(4,402)	$	(797)	$	277,036

Balances, February 1, 2023	13,441,590	$	2,374	$	162,208	$	207,832	$	(88,641)	$	(2,876)	$	—	$	280,897
Net income	—		—		—		14,876		—		—		—		14,876
Foreign currency translation gain	—		—		—		—		—		255		—		255
Net unrealized losses on available-for-sale securities	—		—		—		—		—		(720)		—		(720)
Stock compensation expense	—		—		2,218		—		—		—		—		2,218
Stock option exercises and other share-based award settlements	81,851		—		(2,103)		—		3,050		—		—		947
Common stock repurchases	(169,788)		—		—		—		(6,738)		—		—		(6,738)
Cash dividends	—		—		—		(6,699)		—		—		—		(6,699)
Balances, July 31, 2023	13,353,653	$	2,374	$	162,323	$	216,009	$	(92,329)	$	(3,341)	$	—	$	285,036

Balances, February 1, 2022	15,257,688	$	2,368	$	158,190	$	188,690	$	(20,405)	$	(2,451)	$	(797)	$	325,595
Net income	—		—		—		11,707		—		—		—		11,707
Foreign currency translation loss	—		—		—		—		—		(1,951)		—		(1,951)
Stock compensation expense	—		—		1,979		—		—		—		—		1,979
Stock option exercises and other share-based award settlements	39,099		6		60		—		—		—		—		66
Common stock repurchases	(1,412,592)		—		—		—		(53,168)		—		—		(53,168)
Cash dividends	—		—		—		(7,192)		—		—		—		(7,192)
Balances, July 31, 2022	13,884,195	$	2,374	$	160,229	$	193,205	$	(73,573)	$	(4,402)	$	(797)	$	277,036

The accompanying notes are an integral part of these condensed consolidated financial statements.

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	$	14,876	$	11,707
Adjustments to reconcile net income to net cash used in operating activities
Stock compensation expense		2,218		1,979
Depreciation		1,035		1,556
Lease expense		884		1,319
Changes in accrued interest on investments		(341)		(617)
Deferred income tax (benefit) expense		(196)		373
Amortization of intangible assets		196		399
Equity in loss (income) of solar energy investments		98		(1,070)
Other		64		8
Changes in operating assets and liabilities
Accounts receivable		5,600		2,090
Contract assets		4,031		(3,774)
Other assets		(5,176)		9,252
Accounts payable and accrued expenses		(8,931)		(16,124)
Contract liabilities		20,195		(63,874)
Net cash provided by (used in) operating activities		34,553		(56,776)

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments		(90,000)		(175,000)
Maturities of short-term investments		159,750		90,000
Purchases of available-for-sale securities		(60,261)		—
Purchases of property, plant and equipment		(1,031)		(638)
Net cash provided by (used in) investing activities		8,458		(85,638)

CASH FLOWS FROM FINANCING ACTIVITIES
Common stock repurchases		(6,738)		(53,168)
Payments of cash dividends		(6,699)		(7,192)
Proceeds from the exercise of stock options		947		66
Net cash used in financing activities		(12,490)		(60,294)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH		331		(4,420)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		30,852		(207,128)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		173,947		350,472
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	204,799	$	143,344

SUPPLEMENTAL CASH FLOW INFORMATION (see Notes 7 and 10)

The accompanying notes are an integral part of these condensed consolidated financial statements.

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.

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.

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	$	127,064	$	—	$	—	$	68,647	$	—	$	—
Available-for-sale securities		—		59,992		—		—		—		—
Totals	$	127,064	$	59,992	$	—	$	68,647	$	—	$	—

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:

Identify the contract,

Identify the performance obligations of the contract,

Determine the transaction price of the contract,

Allocate the transaction price to the performance obligations, and

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

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 $87.0 million and $127.6 million, respectively. The amounts of revenues recognized during the three months ended July 31, 2023 and 2022 that were included in the balances of contract liabilities as of April 30, 2023 and 2022, respectively, were approximately $64.7 million and $83.2 million, respectively.

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 $28.1 million and $49.1 million, respectively.

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 $12.8 million and $11.6 million, respectively. Variations related to the Company’s contracts typically represent modifications to the existing contracts and performance obligations and do not represent new performance obligations. Actual costs related to any changes in the scope of the corresponding contract are expensed as they are incurred. Changes to total estimated contract costs and losses, if any, are reflected in operating results for the period in which they are determined.

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

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 $0.7 billion. The largest portion of RUPO at any date usually relates to engineering, procurement and construction ("EPC”) service and other construction contracts with typical performance durations of one to three years. However, the length of certain significant construction projects may exceed three years. The Company estimates that approximately 37% of the RUPO amount at July 31, 2023 will be included in the amount of consolidated revenues that will be recognized during the remainder of the fiscal year ending January 31, 2024 ("Fiscal 2024”). Most of the remaining amount of the RUPO amount at July 31, 2023 is expected to be recognized in revenues during the fiscal years ending January 31, 2025 and January 31, 2026.

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	$	80,281	$	93,949	$	147,800	$	174,221
Republic of Ireland		48,075		15,532		70,656		25,186
United Kingdom		12,993		8,629		26,568		18,980
Consolidated Revenues	$	141,349	$	118,110	$	245,024	$	218,387

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.

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 $0.6 million and $0.3 million, respectively.

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	$	81,624	$	151,511
Available-for-sale securities		59,992		—
Total investments	$	141,616	$	151,511

Short-Term Investments

Short-term investments as of July 31, 2023 and January 31, 2023 consisted solely of CDs with weighted average maturities of one year or less purchased from Bank of America, N.A. (the "Bank”). The Company has the intent and ability to hold the CDs until they mature, and they are carried at cost plus accrued interest. Interest income is recorded when earned and is included in other income. At July 31, 2023 and January 31, 2023, the weighted average annual interest rates of the outstanding CDs were 5.3% and 2.5%, respectively. The balances of accrued interest on the CDs at July 31, 2023 and January 31, 2023 were $1.6 million and $1.8 million, respectively.

Available-For-Sale Securities

AFS securities as of July 31, 2023 consisted solely of U.S. Treasury notes with original maturities of two and three years. The Company’s AFS securities consisted of the following amounts of amortized cost, allowance for credit losses, gross unrealized gains and losses and estimated fair value by contractual maturity as of July 31, 2023:


	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	$	25,162	$	—	$	—	$	276	$	24,886
Due in two to three years		35,550		—		—		444		35,106
Totals	$	60,712	$	—	$	—	$	720	$	59,992

As of July 31, 2023, interest receivable in the amount of $0.6 million is included in the balance of AFS securities. For the three and six months ended July 31, 2023, the change in net unrealized holding losses for the Company’s AFS securities reported in other comprehensive income was approximately $0.7 million for both periods. For the three and six months ended July 31, 2023, there were no sales of the Company’s AFS securities, and therefore, there were no amounts of gains or losses reclassified out of other comprehensive income into net income. The Company does not believe the unrealized losses represent credit losses based on the evaluation of evidence as of July 31, 2023, which includes an assessment of whether it is more likely than not the Company will be required to sell or intends to sell the investment before recovery of the investment’s amortized cost basis.

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 $1.8 million and $1.9 million, respectively.

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 $18.5 million and $9.5 million, respectively. Management does not believe that any events or circumstances occurred or arose since January 31, 2023, that required an updated assessment of the goodwill balances of either the GPS or TRC reporting units.

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	15 years	$	4,499	$	2,300	$	2,199	$	4,499	$	2,150	$	2,349
Customer relationships	10 years		916		702		214		916		656		260
Totals		$	5,415	$	3,002	$	2,413	$	5,415	$	2,806	$	2,609

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 1.6% and to add SOFR successor rate language. The Credit Agreement, as amended, includes the following features, among others: a lending commitment of $50.0 million including a revolving loan and an accordion feature which allows for an additional commitment amount of $10.0 million, subject to certain conditions. The Company may also use the borrowing ability to cover other credit instruments issued by the Bank for the Company’s use in the ordinary course of business as defined in the Credit Agreement. Additionally, the Credit Agreement, as amended, continues to include customary terms, covenants and events of default for a credit facility of its size and nature. The Company intends to renew the Credit Agreement prior to its expiration date.

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 $9.4 million at July 31, 2023, in support of the activities of APC under existing customer contracts. The comparable outstanding total amount of letters of credit at January 31, 2023 was $8.8 million.

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 option to extend or to terminate the lease when it is reasonably certain the Company will exercise such option. Right-of-use assets at July 31, 2023 and January 31, 2023, were $4.5 million and $4.8 million, respectively.

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 $0.4 million and $0.9 million, respectively, and they were $0.5 million and $1.3 million for the three and six months ended July 31, 2022, respectively. Operating lease payments for the three and six months ended July 31, 2023 were $0.4 million and $0.9 million, respectively, and they were $0.5 million and $1.3 million for the three and six months ended July 31, 2022, respectively.

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)	$	879
2025		1,470
2026		1,194
2027		276
2028		221
Thereafter		817
Total lease payments		4,857
Less imputed interest		297
Present value of lease payments		4,560
Less current portion (included in accrued expenses)		1,535
Noncurrent portion (included in noncurrent liabilities)	$	3,025

For operating leases as of July 31, 2023, the weighted average lease term and weighted average discount rate were 53 months and 3.8%, respectively. For operating leases as of January 31, 2023, the weighted average lease term and weighted average discount rate were 58 months and 3.7%, respectively. The aggregate amounts of operating lease right-of-use assets added in exchange for lease obligations during the six months ended July 31, 2023 and 2022 were $0.7 million and $0.5 million, respectively.

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 $3.1 million and $6.8 million, respectively, and they were $3.0 million and $5.3 million for the three and six months ended July 31, 2022, respectively. Right-of-use assets and lease liabilities related to short-term leases are excluded from the consolidated balance sheets.

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 $0.5 billion and $0.6 billion, respectively. As of July 31, 2023 and January 31, 2023, the outstanding amount of bonds covering other risks, including warranty obligations related to completed activities, was not material. Not all of our projects require bonding.

The Company also provided a financial guarantee, subject to certain terms and conditions, in the amount of $3.6 million in support of business development efforts. A liability was established for the estimated loss related to this guarantee during the year ended January 31, 2022 ("Fiscal 2022”).

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 nine to twenty-four months 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 500,000 shares of the Company’s common stock for issuance thereunder. On June 20, 2023, the Company’s stockholders approved an allocation of an additional 500,000 shares for issuance under the 2020 Plan. The Company’s board of directors may make share-based awards under the 2020 Plan to officers, directors and key employees. The 2020 Plan replaced the 2011 Stock Plan (the "2011 Plan”); the Company’s authority to make awards pursuant to the 2011 Plan expired on July 19, 2021. Together, the 2020 Plan and the 2011 Plan are hereinafter referred to as the "Stock Plans.”

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

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 ten years. Typically, stock options are awarded with one-third of each stock option vesting on each of the first three anniversaries of the corresponding award date.

As of July 31, 2023, there were 2,325,701 shares of common stock reserved for issuance under the Stock Plans; this number includes 586,225 shares of common stock available for future awards under the 2020 Plan.

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):