Good evening, ladies and gentlemen, and welcome to the Argan, Inc. Earnings Release Conference Call for the Third Quarter of Fiscal 2024, which ended October 31, 2023. This call is being recorded. All participants have been placed on a listen-only mode. Following management's remarks, the call will be opened for questions. There is a slide presentation that accompanies today's remarks, which can be accessed via the webcast. At this time, it is my pleasure to turn the floor over to your host for today, Jennifer Belodeau of IMS Investor Relations. Please go ahead.

Thank you. Good evening and welcome to our conference call to discuss our Argan’s results for the third quarter of fiscal year 2024 ended October 31, 2023. On the call today we have David Watson, Chief Executive Officer, and Hank Deily, Chief Financial Officer. I will take a moment to read the Safe Harbor statement. Statements made during this conference call and presented in the presentation that are not based on historical facts are forward-looking statements. Such statements include, but are not limited to, projections or statements of future goals and targets regarding the company's revenues and profits. These statements are subject to known and unknown factors and risks. The company's actual results, performance, or achievements may differ materially from those expressed or implied by these forward-looking statements and some of the factors and risks that could cause or contribute to such material differences have been described in this afternoon's press release and in Argan’s filing with the U.S. Securities and Exchange Commission. These statements are based on information and understandings that are believed to be accurate as of today, and we do not undertake any duty to update such forward-looking statements. Earlier this afternoon, the company issued a press release announcing its third quarter financial results and filed its third quarter Form 10-Q with the Securities and Exchange Commission. Okay, with that out of the way, I will now turn the call over to David Watson, CEO of Argan. Go ahead, David.

Thanks, Jen, and thank you everybody for joining today. I'll start by reviewing some of the highlights of our operations and activities and Hank Deily, our CFO, will go through or will go over our financial results for the third quarter of fiscal 2024, ended October 31, 2023. Then we'll open up the call for a brief Q&A. During the third quarter, we saw revenues grow by 39% to $164 million, reflecting improvements from both our power industry services and our industrial construction services businesses. We delivered solid profitability outside the Kilroot job, which I will cover later in detail, and we saw continued strength in our balance sheet. Our backlog at October 31, 2023, was a healthy $730 million, and we closed the third quarter of fiscal 2024 with almost $400 million of cash and investments and net liquidity of $240 million. Additionally, we continue to carry no debt. During the third quarter, we repurchased approximately 43,000 shares of our common stock pursuant to our stock repurchase program for a total spend of approximately $1.7 million, or $40.54 per share. We were also pleased to increase our cash dividend payout 20% to $0.30 per quarter, reflecting our confidence in our businesses. On slide four, you see our three reportable business segments. Power and industry services is comprised of our Gemma Power Systems and Atlantic Projects Company operating units, which focus on the construction of multiple types of power facilities, including efficient gas-fired power plants, solar energy fields, biomass facilities, and wind farms. Power industry services revenues increased 34% to $121.3 million, as compared to $90.7 million for the third quarter of fiscal 2023. The segment represented 74% of our third quarter revenues and reported pre-tax book income of $11 million. Industrial Construction Services, which is represented by the Roberts…

Thanks, David, and good afternoon, everyone. On slide 10, we present our consolidated statements of earnings for the third quarter and the first nine months of fiscal 2024. Third quarter revenues increased 39% to $164 million, reflecting an increase in revenues from both our power services and industrial services segments, as compared to the third quarter of fiscal 2023. In the third quarter, we achieved a 34% increase in revenues in our power industry services segment, primarily related to projects under construction overseas and the Trumbull Energy Center, partially offset by decreased revenues associated with the Guernsey Power Station and the Maple Hill Solar Facility as those projects reach the final completion stage. In our industrial construction services segment, the company achieved revenue growth of 74% driven by a substantial increase in field services and supporting steel fabrication work. That said, as David previously mentioned, APC has been contending with significant and escalating operational and contractual challenges associated with the Kilroot Power Station project in Northern Ireland. For the three months ended October 31, 2023, Argan reported consolidated gross profit of approximately $19.2 million, which represented a gross profit percentage of approximately 11.7% and reflected positive contributions from all three reportable business segments. However, these results were adversely impacted by the recorded loss of $10.7 million related to the Kilroot project, an amount representing approximately 6.5% of consolidated revenues for the quarter. Consolidated gross profit for the quarter ended October 31, 2022, was $22.2 million, representing a gross profit percentage of 18.8%. Selling, general, and administrative expenses of $11.4 million for the third quarter of fiscal 2024 decreased, as compared to SG&A of $12.7 million in the third quarter of fiscal 2023. Net income for the third quarter of fiscal 2024, as adversely affected by the Kilroot loss, was $5.5…

Thanks, Hank. Turning to slide 11, our consolidated project backlog remains solid at over $0.7 billion as of October 31, 2023. I think it's important to note that, as expected and mentioned on our last call, we did not add any major projects in the quarter. However, we were pleased to add $70 million in miscellaneous backlog during the quarter, which partially offset the $164 million of backlog that was converted to revenues. While this is a decline from the backlog level of $0.8 billion we maintained through the first-half of fiscal 2024, we continue to see a strong pipeline of opportunities and our backlog continues to reflect longer-term, fully committed projects in both the power industry and industrial services segments. On slide 12, we present certain major projects currently included in our backlog. We have two projects currently winding down, the Guernsey Power Station, which is the largest single-phase gas-fired power plant project in the U.S., and the Maple Hill Solar Facility. Both are substantially complete and are expected to reach final completion in Q4. The three ESB FlexGen peaker plants and the Shannonbridge thermal plants are both in the final stages of construction and several of the power units have either started commissioning or getting close to starting commissioning. The Vistra Solar Plus battery projects in Illinois are relatively new to the list for which we expect to receive full notices to proceed in Q4. We also include two separate water treatment plant projects that are being performed by TRC. Our backlog remains very healthy with a variety of projects that demonstrate the range of our capabilities and our recognition in the power industry as the effective industry partner, not only in the U.S., but also in Ireland and the U.K. Our balance sheet remained strong as of…

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

Good afternoon.

Good afternoon, Rob.

Kind of first question touching on Kilroot and some of the challenges there. I guess the question is sort of how certain are you at this point that the charges you've taken are kind of it? Or how much is left to kind of go? And how much is uncertain at this point?

Yes, Rob, we're doing everything we can to mitigate these losses we have a challenging customer on a challenging project at the end of the day. We're continuing all efforts to resolve open variations, claims and appropriate extensions of time to mitigate these losses and improve the final results of this project. I mean we plan to vigorously pursue all of our rights under the contract, including through legal means if necessary. I mean the good news is we are currently estimating that it is approximately 95% complete with design and construction. We have started commissioning on the facility, and we expect to be ready for the first fire of both gas turbines by early 2024. The determination of the amount of the loss recorded in Q3, which was a lot includes our estimates of the realistic level of effort and the associated costs required for us to complete the project. And however, there can be no assurances that are overcoming the risk associated with this project won't cause us to incur unplanned future costs or to suffer unfavorable contract variations. December, January and February are going to be important months for us on the project, both operationally and contractually, and we have some of our best team members throughout the Argan organization focuses on this. Again, we have a substantial number of valid claims over $20 million that we will be pursuing and hope to mitigate and improve current forecasts when successfully resolved. So yes, to answer your question, there is possible downside, but there's also a possibility of upside?

Okay. Okay, got it. And then, I guess, in general, sort of -- some of these challenges in the European market kind of change your strategy there? Or is this a one-off situation?

Well, I mean, we believe we have a strong core business at APC. They do great with shutdowns, outages and maintenance works and they're currently executing well on all our other larger projects with the exception of Kilroot. I know you're kind of alluding to T side. We've gone through both a leadership change since then. And significant growth. Our revenues are up over 350% in 2 years. So while we are still working to improve the process disciplines within APC, we are optimistic about the future of the subsidiary. Due to our work to improve process and discipline in a difficult market environment, which Europe has been for this. We do expect reduced revenues next fiscal year as we kind of solidify the business and modify our risk profile for market conditions now and into the future.

Okay. Thank you. And then on the new project pipeline, I think you talked about some full notice proceeds in Q4, I guess could you characterize kind of the pipeline between the renewables and the gas plant pipeline? And then what's the sort of pipeline of gas plants that you're also pursuing at this point? And what's the sort of outlook there?

Yes. I mean our backlog stayed strong, and we do believe our pipeline is as well. Based on our current visibility, into our pipeline. We do expect some additional large projects over the next nine months and to your point, including getting full notices to proceed on some of our renewable jobs in Q4. The new work is going to be a mix of renewable and gas. We're primarily seeing gas-fired plant opportunities in the PJM, the MISO and ERCOT regions, which are basically the Midwest, Texas, to the Mid-Atlantic and Southeast. And we ultimately expect to see our backlog meaningfully exceed where we are today. But as I've said before, you got to keep in mind, the starts of future project wins are controlled by the customer, which makes it difficult to forecast our backlog, given the material size of certain projects and thermal jobs always take longer than we would like, but giving you a development job -- getting into about job to the finish is not easy. The PJ auctions have further delayed to the summer of 2024. So we expect the number of not just renewable, but gas jobs between now and through next year. But I do want to point out, we added without a major new job, $70 million of miscellaneous backlog during the quarter, which offset a lot of the $164 million a backlog that we converted to revenues, which demonstrates the benefits of an increasingly diversified organization.

Okay, thank you. I’ll turn over.

Thanks, Rob.

[Operator Instructions] We appear to have no further questions in queue. Just one moment. We actually have a question coming from Chris Moore with CGS Securities. Chris, your line is line.

Terrific. All right, guys. Thanks for taking a few questions. Maybe we just stay with Kilroot for a bit. you had, for a while, have been talking about that being a difficult project is in the Q2, I think you estimated it was about 80% done. Now it's about 95%. I'm just still trying to understand a little bit better in terms of what incrementally happened during the Q3 that drove this charge?

Yes. Sure, Chris. So just to be clear, the 95% complete is with the design and construction, that's not the entire job that doesn't include commissioning that we are definitely further way north of 80% on that. It's -- there's just been a lot of changes in the scope of this project that have just been difficult for us. And frankly, it's just been a really difficult customer to work with, and we're doing our best to make it work because we want to have a successful project. And that just really kind of came to more of ahead here during Q3 as well as you get super close to the end of the job, things -- that's -- there are a lot of risk at the end of the job, as you know, with any of our jobs that we do. And that's when things really kind of come to a head.

Got it. I'll leave that one there. Maybe you could just help me with the math. Q3 gross margin without the Kilroot issues would have been roughly where?

It would have been 8-point , I think, Hank, 8.8%, something like that. It was a really strong quarter across the business with the exception of Kilroot, which is no excuse.

Got it. And is there -- was there any excess Guernsey margin in Q3?

We'll finish Guernsey in Q4. We did close out some items on Guernsey during Q3, and we also reached substantial completion on Maple Hill in Q4 here. So our expectation is both Guernsey and Maple Hill are going to be fully finished out in Q4. But yes, we did close out some other items in Q3 for Guernsey.

Got you. And maybe talk about Roberts, it really looks to be hitting stride $38-plus million this quarter. Is there anything different in the strategy today versus a few years ago that's I think the last 10, 11 quarters have been pretty strong.

Chris, I appreciate that question. Roberts has been a long process for me, for my years here at Argan and I've just been really pleased to see where we are today on it. Robert's generated over $30 million, as you mentioned, it's generated over $30 million for the last three straight quarters for a total of $102 million, which is more than all of last year. We strategically consolidated some of our business segment -- business segments there. We consolidated two plants into one to reduce our cost. And we've been focusing on doing field services, which has been a more profitable piece of that business. We've also made a change in leadership and we've also added to that leadership. So we feel like we've got a really strong team in place for growth over the long run. And as you can see, a $102 million through three quarters, the run rate is north of $130 million, and the expectation is for this business to continue to grow.

Got it. Very helpful. I will leave it there. I appreciate it, guys.

Appreciate it, Chris.

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

Thank you all for participating in today's call. Happy holidays to each of you, and we look forward to speaking with you again when we report our Q4 fiscal 2024 earnings next year. Have a great evening.

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