Argan, Inc. Reports Diluted EPS of $0.19 for the Third Quarter; Backlog Exceeds $505 Million

Friday, December 12, 2008 11:57 AM

Argan, Inc. (NYSE Alternext U.S.: AGX) today announced financial results for the three and nine months ended October 31, 2008.

For the nine months ended October 31, 2008, net revenues were $164.9 million compared to $152.8 million in the nine months ended October 31, 2007. Gemma contributed $151.0 million, or 91.6% of total revenues, in the first nine months of fiscal 2009 compared to $131.0 million, or 85.7% of total revenues in the first nine months of fiscal 2008. Combined revenues from Argan’s other wholly-owned subsidiaries decreased to $13.9 million, or 8.4% of total revenues in the first nine months of fiscal 2009 compared to $21.9 million, or 14.3% of total revenues in the first nine months of fiscal 2008. Net income for the first nine months ended October 31, 2008 was $5.0 million, or $0.40 per fully diluted share based on 12,480,000 fully diluted shares outstanding compared to a net loss of $2.6 million or ($0.24) per fully diluted share based on 11,095,000 fully diluted shares outstanding for the first nine months ended October 31, 2007.

Net revenues for the three months ended October 31, 2008 were $41.4 million compared to $49.3 million for the three months ended October 31, 2007. Argan’s wholly-owned subsidiary, Gemma Power Systems (Gemma), contributed $36.4 million, or 87.9% of total revenues, for the quarter ended October 31, 2008 compared to $42.0 million, or 85.3% of total revenues, for the quarter ended October 31, 2007. Combined revenues for the quarter ended October 31, 2008 at Argan’s other wholly-owned subsidiaries decreased to $5.0 million or 12.1% of total revenues from $7.2 million, or 14.7% of total revenues, in the quarter ended October 31, 2007. Net income for the third quarter ended October 31, 2008 was $2.6 million, or $0.19 per fully diluted share based on 13,730,000 fully diluted shares outstanding compared to a net loss of $2.0 million, or ($0.18) per fully diluted share based on 11,096,000 fully diluted shares outstanding in the quarter ended October 31, 2007.

The Company reported consolidated EBITDA (Earnings before interest, taxes, depreciation and amortization) of $13.3 million and $4.5 million, respectively, for the nine months and three months ended October 31, 2008.

On a segment basis, Gemma reported income before income taxes of $16 million for the nine months and $5.9 million for the three months ended October 31, 2008.

Argan had cash of $93.1 million and escrowed cash of $10.3 as of October 31, 2008. The Company’s backlog as of October 31, 2008 was $505 million.

Included in the backlog is Gemma’s engineering, procurement and construction agreement with Competitive Power Ventures (CPV), signed in October and valued at $211 million, to design and build eight simple cycle gas-fired peaking plants with a total power rating of 800 megawatts, to be located in southern California. Additionally in the three months ended October 31, 2008, Gemma received a full notice to proceed from Pacific Gas & Electric on the design and construction of a natural gas-fired power plant in Colusa, California. The Company previously announced that it had signed an engineering, procurement and construction agreement for the Colusa project.

Gemma’s backlog does not include projects associated with Gemma Renewable Power, its business partnership with Invenergy Wind Management. During the quarter, Gemma Renewable Power received an initial limited notice to proceed on a project with an estimated contract value of $50 million, to design and build the expansion of a wind farm in LaSalle County, Illinois.

Commenting on Argan’s results, Rainer Bosselmann, Chairman and Chief Executive Officer stated, “We achieved strong EBITDA margin and improved net income year-to-date and for the quarter. Gemma continues to perform very well and benefits from its reputation as a leading designer and builder of power plants. Year-to-date revenue at Gemma increased 15% and year-to-date pretax income increased by 147%. During the quarter, Gemma was successfully completing the final phases of several renewable energy projects and was in the early stages of two substantial traditional power projects.”

Mr. Bosselmann concluded, “In addition to Gemma’s strong existing backlog, we are encouraged by potential opportunities for the design and construction of wind farms through Gemma Renewable Power, our joint venture with Invenergy. Gemma has been very successful in the design and construction of traditional energy plants and we believe that expertise will translate well to the efficient design and development of wind energy facilities.”

About Argan, Inc.

Argan’s primary business is designing and building energy plants through its Gemma Power Systems subsidiary. These energy plants include traditional gas as well as alternative energy including biodiesel, ethanol, and renewable energy sources such as wind power and solar. Argan also owns Southern Maryland Cable, Inc. and Vitarich Laboratories, Inc.

Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws and are subject to risks and uncertainties including, but not limited to; (1) the Company’s ability to achieve its business strategy while effectively managing costs and expenses; (2) the Company’s ability to successfully and profitably integrate acquisitions; and (3) the continued strong performance of the energy sector. Actual results and the timing of certain events could differ materially from those projected in or contemplated by the forward-looking statements due to a number of factors detailed from time to time in Argan’s filings with the Securities and Exchange Commission. In addition, reference is hereby made to cautionary statements with respect to risk factors set forth in the Company’s most recent reports on Form 10-K and 10-Q, and other SEC filings.


ARGAN, INC. AND SUBSIDIARIES
Consolidated Statements of Operations

	Three Months Ended October 31,						Nine Months Ended October 31,
	(unaudited)						(unaudited)
	2008			2007			2008			2007
Net revenues
Power industry services	$	36,387,000		$	42,017,000		$	151,034,000		$	130,970,000
Nutritional products		2,662,000			4,617,000			7,287,000			14,602,000
Telecommunication infrastructure services		2,338,000			2,629,000			6,570,000			7,260,000
Net revenues		41,387,000			49,263,000			164,891,000			152,832,000
Cost of revenues
Power industry services		29,742,000			35,548,000			131,425,000			119,383,000
Nutritional products		2,983,000			4,193,000			7,701,000			12,481,000
Telecommunication infrastructure services		1,824,000			2,076,000			5,474,000			5,776,000
Cost of revenues		34,549,000			41,817,000			144,600,000			137,640,000
Gross profit		6,838,000			7,446,000			20,291,000			15,192,000
Selling, general and administrative expenses		3,090,000			4,381,000			11,118,000			13,715,000
Impairment losses of VLI		--			4,666,000			1,946,000			4,666,000
Income (loss) from operations		3,748,000			(1,601,000	)		7,227,000			(3,189,000	)
Other income, net		306,000			903,000			850,000			1,802,000
Income (loss) from operations before income taxes		4,054,000			(698,000	)		8,077,000			(1,387,000	)
Income tax expense		(1,430,000	)		(1,259,000	)		(3,092,000	)		(1,253,000	)
Net income (loss)	$	2,624,000		$	(1,957,000	)	$	4,985,000		$	(2,640,000	)

Income (loss) per share
Basic	$	0.20		$	(0.18	)	$	0.41		$	(0.24	)
Diluted	$	0.19		$	(0.18	)	$	0.40		$	(0.24	)
Weighted average number of shares outstanding:
Basic		13,414,000			11,096,000			12,138,000			11,095,000
Diluted		13,730,000			11,096,000			12,480,000			11,095,000


Reconciliations to EBITDA

	Three Months Ended October 31,					Nine Months Ended October 31,
	(unaudited)					(unaudited)
	2008		2007			2008		2007

Net income (loss), as reported	$	2,624,000	$	(1,957,000	)	$	4,985,000	$	(2,640,000	)
Income tax expense		1,430,000		1,259,000			3,092,000		1,253,000
Depreciation and other amortization		159,000		324,000			842,000		968,000
Amortization of purchased intangible assets		115,000		1,201,000			1,289,000		5,290,000
Interest expense		108,000		171,000			336,000		550,000
Stock option compensation expense		60,000		182,000			848,000		282,000
Impairment losses of VLI		--		4,666,000			1,946,000		4,666,000

EBITDA	$	4,496,000	$	5,846,000		$	13,338,000	$	10,369,000

Management uses EBITDA, a non-GAAP financial measure, for planning purposes, including the preparation of operating budgets and to determine appropriate levels of operating and capital investments. Management believes that EBITDA provides additional insight for analysts and investors in evaluating the Company's financial and operational performance and in assisting investors in comparing the Company's financial performance to those of other companies in the Company's industry. However, EBITDA is not intended to be an alternative to financial measures prepared in accordance with GAAP and should not be considered in isolation from our GAAP results of operations. Pursuant to the requirements of SEC Regulation G, reconciliations between the Company's GAAP and non-GAAP financial results are provided above and investors are advised to carefully review and consider this information as well as the GAAP financial results that are disclosed in the Company's SEC filings.


ARGAN, INC. AND SUBSIDIARIES
Consolidated Balance Sheets

	October 31,			January 31,
ASSETS	2008			2008
CURRENT ASSETS:	(unaudited)			(unaudited)

Cash and cash equivalents	$	93,143,000		$	66,827,000
Escrowed cash		10,324,000			14,398,000
Accounts receivable, net of allowance for doubtful accounts		3,420,000			30,481,000
Inventories, net of reserve for obsolescence		2,533,000			2,808,000
Current deferred tax assets		882,000			406,000
Prepaid expenses and other current assets		1,383,000			1,330,000
TOTAL CURRENT ASSETS		111,685,000			116,250,000
Property and equipment, net of accumulated depreciation		1,331,000			2,892,000
Goodwill		19,416,000			20,337,000
Other purchased intangible assets, net of accumulated amortization		3,921,000			5,296,000
Investment in unconsolidated subsidiary		1,241,000			--
Deferred tax assets		2,321,000			828,000
Other assets		153,000			260,000
TOTAL ASSETS	$	140,068,000		$	145,863,000

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable	$	29,853,000		$	35,483,000
Accrued expenses		9,142,000			9,370,000
Billings in excess of cost and earnings		22,557,000			52,313,000
Current portion of long-term debt		2,526,000			2,581,000
TOTAL CURRENT LIABILITIES		64,078,000			99,747,000
Long-term debt		2,250,000			4,134,000
Other liabilities		77,000			116,000
TOTAL LIABILITIES		66,405,000			103,997,000
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; 13,433,684 and 11,113,534 shares issued at 10/31/08 and 1/31/08, and 13,430,451 and 11,110,301 shares outstanding at 10/31/08 and 1/31/08, respectively		2,014,000			1,667,000
Warrants outstanding		753,000			834,000
Additional paid-in capital		84,359,000			57,861,000
Accumulated other comprehensive loss		(59,000	)		(107,000	)
Accumulated deficit		(13,371,000	)		(18,356,000	)
Treasury stock, at cost; 3,233 shares at 10/31/08 and 1/31/08		(33,000	)		(33,000	)
TOTAL STOCKHOLDERS' EQUITY		73,663,000			41,866,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	140,068,000		$	145,863,000

Argan, Inc.
Rainer Bosselmann/Arthur Trudel
301-315-0027
or
Investor Relations:
Institutional Marketing Services (IMS)
John Nesbett/Jennifer Belodeau
203-972-9200

(Source: Business Wire )

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