Argan Inc: Form 10-Q for the period ended Oct 31, 2024

The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of October 31, 2024, and the results of their operations for the three and nine month periods ended October 31, 2024 and 2023, and should be read in conjunction with (i) the unaudited condensed consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and (ii) the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for Fiscal 2024 that was filed with the SEC on April 11, 2024 (the “Annual Report”).

Cautionary Statement Regarding Forward Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. We have made statements in this Item 2 and elsewhere in this Quarterly Report on Form 10-Q that may constitute “forward-looking statements.” The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “foresee,” “should,” “would,” “could,” or other similar expressions are intended to identify forward-looking statements.

Our forward-looking statements, financial position and results of operations, are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenues and operating results are based on our forecasts for existing operations and do not include the potential impact of any future acquisitions.

Our forward-looking statements, by their nature, involve significant risks and uncertainties (some of which are beyond our control) and assumptions. They are subject to change based upon various factors including, but not limited to, the risks and uncertainties described in this Quarterly Report on Form 10-Q and our Annual Report. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove to be incorrect, actual results may vary in material respects from those projected in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Business Description

The Company is primarily a construction firm that conducts operations through its wholly-owned subsidiaries, GPS, APC, TRC and SMC. Through GPS and APC, we provide a full range of engineering, procurement, construction, commissioning, maintenance, project development and technical consulting services to the power generation market for a wide range of customers, including independent power project owners, public utilities, power plant equipment suppliers and other commercial firms with significant power requirements in the U.S., Ireland and the U.K. GPS and APC represent our power industry services reportable segment. Through TRC, the industrial construction services reportable segment provides primarily on-site services that support new plant construction and additions, maintenance turnarounds, shutdowns and emergency mobilizations for industrial plants 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.

We may make additional opportunistic acquisitions and/or investments by identifying companies with significant potential for profitable growth and realizable synergies with one or more of our existing businesses. However, we may have more than one industrial focus depending on the opportunity and/or needs of our customers. Significant acquired companies will be operated in a manner that we believe will best provide long-term and enduring value for our stockholders.

Project Backlog

At October 31, 2024 and January 31, 2024, our consolidated project backlog amounts were each $0.8 billion, which consisted substantially of the projects of the power industry services reporting segment. Our reported amount of project backlog at a point in time represents the total value of projects awarded to us that we consider to be firm as of that date less the amounts of revenues recognized to date on the corresponding projects.

Typically, we include the total value of EPC services and other major construction contracts in project backlog upon receiving a notice to proceed from the project owner. When provided with a limited notice to proceed (“LNTP”), we usually add only the value of the contract related to the LNTP initially. Nevertheless, the inclusion of contract values in project backlog may require management judgement based on the facts and circumstances.

We are committed to the construction of state-of-the-art, natural gas-fired power plants, as important elements of our country’s electricity-generation mix now and in the future. This represents our core business. In addition, we have been directing meaningful business development efforts to winning EPC services projects for primarily utility-scale solar fields, but also wind farms, hydrogen-based energy projects, battery energy storage projects, and other industrial projects in order to diversify the sources of revenues. At October 31, 2024, approximately 60.0% of our project backlog related to renewable energy projects. For the three and nine months ended October 31, 2024, the amounts of revenues earned by us and associated with renewable energy projects were 42.7% and 38.7%, respectively, of corresponding revenues for the power industry services segment. We have successfully completed alternative energy projects in the past and we have renewed efforts to obtain new work in sectors of the power market that will complement our natural gas-fired EPC services projects going forward.

It is important to note that the start of new projects is primarily controlled by project owners and that delays may occur that are beyond our control. However, we continue to pursue natural gas-fired power plant, renewable energy plant and industrial construction opportunities in the U.S., Ireland and the U.K. Our vision is to safely contribute to the construction of the energy infrastructure and state-of-the-art industrial facilities that are essential to future economic prosperity in the areas where we operate. We intend to realize this vision with motivated, creative, high-energy and customer-driven teams that are committed to delivering the best possible project results each and every time.

405 MW Midwest Solar Project

In April 2024, GPS executed a LNTP with a customer to construct a utility-scale solar field in Illinois that will provide 405 MW of electrical power (the “405 MW Midwest Solar Project”). In August 2024, GPS received a full release for the activities on the EPC contract. The unique, multi-phased project includes solar-tracking panels that can be stowed by remote command for expected adverse weather events and will use pre-existing transmission and utility infrastructure from a nearby retired coal power plant. Project completion is scheduled for the first half of the fiscal year ending January 31, 2027.

Trumbull Energy Center

In October 2022, GPS added to project backlog the EPC services contract value of the Trumbull Energy Center, a 950 MW natural gas-fired power plant now under construction in Lordstown, Ohio (the “Trumbull Energy Center”). We received the full notice to proceed (“FNTP”) from the project owner, Clean Energy Future-Trumbull, LLC, in November 2022. This combined cycle power station will consist of two Siemens Energy SGT6-8000H gas-fired, high efficiency, combustion turbines with two heat recovery steam generators and a single steam turbine. Project completion is scheduled for the last quarter of Fiscal 2026.

Midwest Solar and Battery Projects

In August 2023, GPS executed LNTPs with a customer for three solar and battery projects in Illinois (the “Midwest Solar and Battery Projects”). Under the LNTPs, GPS commenced early engineering and design activities as well as procurement of major equipment for construction of state-of-the-art solar energy and battery energy storage facilities. Between January and early May 2024, GPS received FNTPs on all three of the solar and battery projects. The three projects will cumulatively represent 160 MW of electrical power and 22 MW of energy storage. For these projects, completion is expected in the last quarter of Fiscal 2025 through the first half of Fiscal 2026.

Louisiana LNG Facility

In June 2024, GPS entered into a subcontract and received FNTP for the installation of five 90 MW gas turbines for the dedicated supply of power to a liquified natural gas (“LNG”) facility in Louisiana. This project, led by GPS, is a collaboration with TRC and APC. Project completion is scheduled for Fiscal 2026.

Shannonbridge Power Project

APC entered into an EPC services contract with GE Vernova for the construction and commissioning of an open-cycle thermal power facility in County Offaly, Ireland, that has the capacity to generate approximately 264 MW of temporary emergency electrical power (the “Shannonbridge Power Project”). In August 2023, APC received the FNTP on this project. Substantial completion of this project, that is defined in the corresponding contract as system turnover for commissioning, occurred in March 2024.

ESB FlexGen Peaker Plants

In May 2022, APC entered into engineering and construction services contracts with the ESB to construct three 65 MW aero-derivative gas turbine flexible generation power plants in and around the city of Dublin, Ireland (“ESB FlexGen Peaker Plants”). Two of the power plants, the Poolbeg and Ringsend FlexGen Power Plants, are located on the Poolbeg Peninsula, and the Corduff FlexGen Power Plant is located in nearby Goddamendy. All three projects cleared the applicable capacity auction in Fiscal 2023 and are expected to operate intermittently during peak periods of electricity demand and as back-up supply options when renewable electricity generation is limited. Substantial completion of each power facility occurred during the quarter ended October 31, 2024.

Kilroot Power Station

In October 2021 and pursuant to the Kilroot Project, APC was contracted to construct a 2 x 330 MW natural gas-fired power plant in Carrickfergus that is near Belfast, Northern Ireland, in an existing structure that was initially designed to enclose coal-fired power plant units.

As previously disclosed, there were a number of challenges related to the Kilroot Project that adversely impacted our ability to execute as expected, including supply chain delays, material changes to the project, the COVID-19 omicron outbreak, the war in Ukraine and extreme weather. In addition, unresolved variations and claims disrupted the execution and harmed the cash flow of this project.

APC provided 14 days’ notice to terminate as a result of project owner breaches of the contract. Those breaches were not resolved during that 14-day period, as a result of which the contract terminated on May 3, 2024. Subsequently, the project owner made a draw for the full amount of a $9.2 million irrevocable letter of credit, or on-demand performance bond, issued by the Company’s bank. This amount is now part of the open and disputed claims related to this project because APC and the Company believe the project owner initiated the draw without cause and, therefore, the amount should be refunded. This amount is included in accounts receivable as of October 31, 2024.

We have recognized an estimated contract loss related to the Kilroot Project in the amount of approximately $12.6 million, of which $2.6 million was recorded during the nine-month period ended October 31, 2024 and the remainder was recorded in the prior fiscal year. APC has significant unresolved contract variations and claims for extensions of time, among other issues, related to the Kilroot Project. The project owner has asserted counterclaims that APC disputes. APC will continue to pursue all of its rights under the contract, and will do so through legal means if necessary.

TRC Project Backlog

As of October 31, 2024, TRC’s project backlog was approximately $66.4 million as compared to $127.5 million on January 31, 2024. For the nine months ended October 31, 2024 and 2023, TRC generated $134.7 million and $101.5 million in revenues, respectively. The increase in revenues for the current year from the comparative prior period highlights the results of our successful business development efforts with both new and recurring clients during Fiscal 2023 and Fiscal 2022, particularly in securing larger industrial field service construction projects. Despite the decrease in the amount of TRC’s project backlog during the current year, we are encouraged by the number and size of opportunities in our project pipeline, and we expect the TRC project backlog will increase next year.

Market Outlook

Growing Power Demand

Since 2007, total annual U.S. electricity demand has fluctuated, where eight of the years during that period experienced year-over-year decreases in energy consumption. However, U.S. electricity demand has since reached its highest level in two decades, reflecting a surge in consumption driven by emerging technologies and economic shifts. In the reference case of its most recently published Annual Energy Outlook released in March 2023 (as would be customary, the U.S. Energy Information Administration (the “EIA”) did not publish a report in early 2024), the EIA projected that economic growth paired with increasing electrification in end-user sectors would result in notable growth of electricity demand in the U.S. through 2050.

One prominent driver of this surge in energy demand is the rapid rise of data centers, which are expanding to support the growing adoption of artificial intelligence technologies. These facilities require substantial amounts of electricity to power advanced computing infrastructure, positioning them as a major contributor to future electricity demand. Technology companies with artificial intelligence ambitions have begun exploring deals to bring more power to the grid in order to secure long-term power contracts to address their significant electricity demand. Additionally, the accelerating shift toward electric vehicles (“EVs”) is reshaping the transportation landscape. As more drivers transition to EVs, the need for electricity to power charging networks will grow significantly, further straining grid capacity. Finally, the trend of onshoring manufacturing facilities is adding to the demand for electricity. Companies relocating production to the U.S. to enhance supply chain resilience are increasing the energy requirements of industrial operations. Combined, these factors underscore a growing imperative for the U.S. energy sector to adapt to rising electricity demands in the coming decades.

Natural Gas Power

The overall growth of our power business has been substantially based on the number of combined cycle gas-fired power plants built by us, as many coal-fired plants have been shut down in the U.S. In 2010, coal-fired power plants accounted for about 45% of net electricity generation in the U.S. For 2023, coal fueled approximately 17% of net electricity generation. It has been reported that the average age of the active plants in the coal-fired fleet approximates 45 years old with an average life span of 50 years; the last coal-fired power plant built in the U.S. was constructed in 2015. On the other hand, natural-gas fired power plants provided approximately 42% of the electricity generated by utility-scale power plants in the U.S. in 2023, representing an increase of 70% in the amount of electrical power generated by natural gas-fired power plants since 2010. Natural gas-fired power plants provided approximately 24% of net electricity generation in 2010.

In November 2023, Texas voters approved the $5 billion Texas Energy Fund (“TEF”) to enhance grid reliability and incentivize new dispatchable power generation projects, with a significant focus on natural gas-fired power plants. Shortly thereafter, the Public Utility Commission of Texas selected 17 natural gas-fired generation projects, totaling nearly 10 GW, to advance through a due diligence review, representing $5.4 billion in potential state-backed loans. If all projects proceed, initial disbursements are anticipated by the end of 2025, and the TEF could expand to $10 billion under a proposal from Governor Greg Abbott.

There exist certain headwinds confronting a significant resurgence in the pace of planning new developments of gas-fired power plants. Persistent supply chain constraints, which delay critical equipment delivery, and interconnect challenges that complicate grid integration delay project timelines and strain project financing. In addition, various cities, counties and states have adopted clean energy and carbon-free goals or objectives with achievement expected by a certain future date, typically 10 to 30 years out.

Solar and Wind Power

The net amount of electricity generation in the U.S. provided by utility-scale solar photovoltaic and wind facilities continues to rise. Together, such power facilities provided approximately 12%, 13% and 15% of the net amount of electricity generated by utility-scale power facilities in 2021, 2022 and 2023, respectively. The EIA projected that new photovoltaic solar and wind capacity will continue to be added to the utility-scale power fleet in the U.S. at a brisk pace, attributable to declines in costs of renewable power plants and power storage, an increase in the scale of energy storage capacity (i.e., battery farms and other energy storage technologies), the availability of valuable tax credits, and the overall political commitment to renewable energy.

Declining capital costs for solar panels, wind turbines and battery storage, as well as government subsidies like those included in the Inflation Reduction Act of 2022 (the “IRA”), were projected to result in renewables becoming increasingly cost effective compared with the alternatives when the costs of building new power capacity were considered. The EIA indicated that for 2024, of the approximately 62.8 gigawatts of new utility-scale electric-generating capacity that was planned to be added to U.S. power grids, approximately 71% was expected to come from solar and wind facilities.

Nuclear Power

Over the last several decades, the number of operating nuclear reactors has declined. Only four nuclear reactors have entered into commercial operation in the last thirty years, the most recent being the Vogtle Units 3 and 4, located in Georgia, which entered into commercial operations in July 2023 and April 2024, respectively. Suffering significant cost overruns—more than twice the initial estimates—and substantial delays, the Vogtle units have caused the industry to shift focus to smaller, more economical designs. The deployment of small modular reactors could mean lower construction and electricity costs through the use of simpler power plant designs, standardized components and passive safety measures.

The Regulatory Landscape

In August 2022, President Biden signed the IRA, a climate and healthcare bill that funds hundreds of billions of dollars in tax subsidies intended to combat climate change among other measures. However, it appears that receipt of the majority of the tax subsidies will be conditioned on the extent that taxpayers “buy American” and/or pay prevailing wages, among other requirements. Existing supply chains and skilled labor pools may lack the capacity to meet the demand that the incentives are intended to create. Therefore, the subsidies may not provide the economic incentives to renewable and other energy project owners to the extent that was expected. Furthermore, the IRA may face challenges from the new administration.

In May 2023, the Biden administration proposed new rules for the Environmental Protection Agency (the “EPA”) that are intended to drastically reduce greenhouse gases from coal- and gas-fired power plants that officials admit will cost such plants billions of dollars to comply fully by 2042. In April 2024, the EPA issued final rules that require coal-fired power plants that are expected to operate beyond 2039 to reduce their carbon emissions by 90% prior to 2032. For new gas-fired power plants, the rules require a sliding scale of carbon capture up to 90% based on the operational load of the individual power plant. Rules for existing natural gas power plants have been delayed until 2025 in response to concern that such rules could affect grid reliability. More recently, President-elect Trump has expressed strong opposition to the EPA’s emissions-regulating rules and has pledged to abolish them.

In June 2023, President Biden signed a bill that raised the debt ceiling, which also included reforms for certain elements of the permitting process for energy projects. The bill imposes certain timelines for federal agencies to review and to approve elements of major energy projects and includes provisions designating a single agency to take the lead on the environmental review process. Such streamlining of the current permitting process for energy generating facilities could ease certain constraints on the power industry.

In May 2024, the Biden administration launched the Federal-State Modern Grid Deployment Initiative, a collaborative measure between the federal government and twenty-one states intended to prioritize efforts that support the adoption of modern grid solutions to expand grid capacity and build modern grid capabilities for both new and existing transmission and distribution lines.

During his campaign and subsequent to his election, President-elect Trump has indicated his intent to impose heavy tariffs on imports from several nations, including Mexico, Canada, and China. These measures aim to address broader policy goals but could introduce supply chain inefficiencies, challenge current trade agreements with certain nations, and affect the cost and availability of materials critical to project execution.

The Power Grid Transition

Throughout the U.S., the risk of electricity shortages grows as the retirement of traditional power plants outpaces their replacement by renewable energy. Electric-grid operators are warning that power-generating capacity is struggling to keep up with demand. The challenge is that solar and wind farms do not produce electricity at all times, and they need large batteries to store their output for later use.

PJM Interconnection LLC (“PJM”) published a study in February 2023 that supported the growing concern that the reliability of power grids is being eroded by the rush to renewable power. The study indicates that the growth rate of electricity demand in the PJM footprint is likely to increase from electrification (i.e., shifts to electric-powered automobiles, electric appliances, etc.) coupled with the proliferation of high-demand data centers in the region. Thermal power generation facilities are being retired at a rapid pace, creating the risk that such retirements may outpace the construction of new power-generating facilities as PJM’s interconnection queue includes primarily intermittent and limited-duration renewable energy resources. Given the operating characteristics of renewable energy facilities and the weather, PJM will need multiple megawatts of renewable power and accompanying battery storage, and improvements in the transmission network, to replace a single megawatt of retired thermal generation.

Additionally, solar and wind energy plant developers continue to confront the problems caused by grid congestion, often unsuccessfully. Many of these projects have been canceled because renewable plants need to be sited where the resources are optimal, often in remote locations where the transmission systems are not robust as power is consumed substantially in urban areas. The costs associated with the necessary grid upgrades may be prohibitive.

Some of our recently completed and awarded EPC service contracts relate to the construction of natural gas-fired power plants located within the Mid-Atlantic geographic footprint of PJM, which operates a capacity market to ensure long-term grid reliability by securing the appropriate amount of power supply resources needed to meet forecasted energy demands in its region. Capacity payments by PJM represent meaningful portions of the revenue streams of qualifying power plants.

Beginning in 2021, annual capacity auctions suffered delays that, once held, resulted in lower prices than previous auctions. The results for the most recent auction that was delayed until July 2024 for the 2025/2026 delivery year, represent a reversal of the unfavorable trend. The auction resulted in a capacity price of approximately $269.92/MW-day for most of the PJM region, whereas the previous auction produced a capacity price of $28.92/MW-day. The significant increase in price was mainly driven by planned power generator retirements coupled with forecasted increases in peak power loads, indicating the market’s anticipation of a mismatch between the ability of the current grid to supply the growing demand for power. However, PJM’s market monitor alleged that flaws in the capacity market design inflated prices in the recent auction, allegations that PJM refutes. In response, PJM has delayed its next capacity auction, to be held for the 2026/2027 delivery year, in order to craft reforms.

Outlook for Natural Gas-Fired Power Plants

We believe that the lower operating costs of natural gas-fired power plants, the higher energy generating efficiencies of modern gas turbines, and the requirements for grid resiliency should sustain the demand for modern combined cycle and simple cycle gas-fired power plants in the future. We believe that the benefits of natural gas as a source of power are compelling, especially as a complement to the deployment of solar and wind-powered energy sources, and that the future long-term prospects for natural gas-fired power plant construction remain favorable as natural gas continues to be the primary source for power generation in our country. The future availability of less carbon-intense, higher efficiency and inexpensive natural gas in the U.S. should be a significant factor in the economic assessment of future power generation capacity additions, although the pace of new opportunities emerging may be restrained and the starts of awarded EPC projects may be delayed or cancelled due to the challenges described above.

The current scramble for electricity, regardless of source, may be clarifying that the 100% transition to renewable energy is in the distant future and has prompted, in part, renewed interest in not only carbon capture techniques, but carbon removal technologies as well. Governments, including the U.S., are taking initial steps to boost this industry. The success of this industry could reduce the climate-change fear associated with natural gas-fired power plants. We intend to execute an “all-of-the-above” approach in pursuing the construction of future facilities that support the energy transition, which we see as a continuation of our historical commitment to building cleaner energy plants.

International Power Markets

The foregoing discussion in this “Market Outlook” has focused on the state of the domestic power market as the EPC services business of GPS historically provides the predominant portion of our revenues. However, overseas power markets may continue to provide important new power construction opportunities for APC, especially across Ireland and the U.K.

The Irish government has issued a policy statement on the security of the electricity supply in Ireland which confirms the requirement for the development of new support technologies to deliver on its commitment to have 80% of the country’s electricity generated from renewables by 2030. The report emphasizes that this will require a combination of conventional generation (typically powered by natural gas), interconnection to other jurisdictions, demand flexibility and other technologies such as battery storage and generation from renewable gases.

Whereas in the U.K., prior to the elections in July 2024, the government had expressed support for new gas-fired power plants to offset the retirement of coal-fired plants, the retirement of aging gas plants, and the intermittency of renewable energy plants. However, with the general election in July 2024, the Labour Party, led by Prime Minister Keri Starmer, has shifted focus toward accelerating the transition to renewable energy while still acknowledging the role of gas as a transitional fuel.

APC is actively pursuing business opportunities for natural gas-fired power generation projects with its existing and new clients. GPS has been providing top management guidance and project management expertise to APC. Currently, APC is undergoing a comprehensive operational review, in collaboration with GPS, to enhance project management processes and profitability.

Industrial Construction Services Outlook

Industrial field services typically represent the majority of TRC’s annual revenues with the remaining revenues contributed by projects consisting solely of metal fabrication. The business footprint for TRC encompasses the Southeast region of the U.S. where there are many local and state governments that welcome industrial production facilities with ideal locations and with serious economic development programs and incentives. The national focus on infrastructure improvements, biotechnology advancements, energy storage and clean water have resulted in firms that are focused on these trends recently choosing TRC to participate in major construction projects in the region. Other important factors and trends include low state corporate tax rates, favorable labor migration patterns, the surface transportation infrastructure and the ready access to modern seaports.

Economic data supports our belief that TRC is ideally located in a leading manufacturing growth area of the U.S., which should continue to provide it with project opportunities going forward that will expand its business and industrial construction capabilities. Despite headwinds such as rising labor costs and skilled labor shortages, it is likely that the near-term will see a boost to construction associated with manufacturing, as well as the transportation and clean energy infrastructures, as funds from three key pieces of national legislation passed in 2021 and 2022 are expected to flow into the industry. These bills include the Infrastructure and Jobs Act, the IRA and the Creating Helpful Incentives to Produce Semiconductors Act, and they appear to be sustaining high construction industry confidence for 2024 and the future beyond.

Comparison of the Results of Operations for the Three Months Ended October 31, 2024 and 2023

The following schedule compares our operating results for the three months ended October 31, 2024 and 2023 (dollars in thousands):

Revenues

Consolidated revenues for the three months ended October 31, 2024 were $257.0 million, which represented an increase of $93.2 million, or 56.9%, from consolidated revenues of $163.8 million reported for the three months ended October 31, 2023. The overall improvement in revenues was due to increases in revenues between quarters for our power industry services and industrial construction services segments, as presented in the table above.

Power Industry Services

The revenues of the power industry services segment, representing the businesses of GPS and APC, increased by 74.9%, or $90.8 million, to $212.1 million for the three months ended October 31, 2024 compared with revenues of $121.3 million for the three months ended October 31, 2023 as the quarterly construction activities increased for the Midwest Solar and Battery Projects, the Trumbull Energy Center, the 405 MW Midwest Solar Project and the Louisiana LNG Facility. The increase in revenues between quarters was partially offset by decreased construction activities associated with the Guernsey Power Station project, the Shannonbridge Power Project and the ESB FlexGen Peaker Plants, as those projects have concluded. The revenues of this business segment represented approximately 82.5% of consolidated revenues for the quarter ended October 31, 2024 and 74.1% of consolidated revenues for the corresponding prior year quarter.

The primary drivers for this segment’s revenues for the three months ended October 31, 2023, were the construction of the Shannonbridge Power Project, the Trumbull Energy Center and the ESB FlexGen Peaker Plants.

Industrial Construction Services

The revenues of our industrial construction services segment, representing the business of TRC, increased by $2.9 million, or 7.6%, to $41.3 million for the three months ended October 31, 2024 compared to revenues of $38.4 million for the three months ended October 31, 2023. For the three months ended October 31, 2024 and 2023, the revenues of this segment represented 16.1% and 23.5% of consolidated revenues for the corresponding periods.

Telecommunications Infrastructure Services

The revenue results of this business segment, which represent the business of SMC, were $3.6 million for the three-month period ended October 31, 2024, a decrease of $0.4 million, or 11.1%, from the amount of revenues earned during the three months ended October 31, 2023.

Cost of Revenues

With the increase in consolidated revenues for the three months ended October 31, 2024 compared with last year’s third quarter ended October 31, 2023, the consolidated cost of revenues also increased between the quarters. These costs were $212.7 million and $144.5 million for the three-month periods ended October 31, 2024 and 2023, respectively, representing an increase of approximately 47.2%.

For the three-month period ended October 31, 2024, we reported a consolidated gross profit of approximately $44.3 million, which represented an increase from the gross profit reported for the three-month period ended October 31, 2023 in the amount of $19.2 million.

The gross profit percentage of corresponding consolidated revenues increased to 17.2% for the three-month ended October 31, 2024, from 11.7% of corresponding consolidated revenues in the comparable prior year period. The increase in the gross profit percentage during the current period was primarily due to the changing mix of projects, strong execution and certain positive project closeouts. Additionally, during the three-month period ended October 31, 2023, gross profit was negatively impacted by losses recorded on the Kilroot Project, which reduced margins by approximately $10.7 million. The gross profit percentages of corresponding revenues for the power industry services, industrial construction services and the telecommunications infrastructure services segments were 18.3%, 11.1% and 26.1%, respectively, for the quarter ended October 31, 2024.

The gross profit percentages of corresponding revenues for the power industry services, industrial construction services and the telecommunications infrastructure services segments were 11.1%, 11.8% and 29.4%, respectively, for the quarter ended October 31, 2023.

Selling, General and Administrative Expenses

These costs were $14.0 million and $11.4 million for the three months ended October 31, 2024 and 2023, respectively, and represented 5.4% and 6.9% of corresponding consolidated revenues, respectively.

Other Income, Net

Other income, net, for the three months ended October 31, 2024 was $6.6 million, which reflected income earned during the period on investments in the total amount of approximately $4.8 million, as the weighted average balances of investments are meaningfully higher this year, and earnings related to cash and cash equivalent balances.

Other income, net, for the three months ended October 31, 2023 was $3.7 million, which reflected primarily income earned during the period on investments in the total amount of approximately $4.0 million.

Income Taxes

We incurred income tax expense for the three months ended October 31, 2024 in the amount of approximately $9.0 million, which represents an effective income tax rate of 24.3%. This effective tax rate differs from the statutory federal tax rate of 21% due primarily to the typically unfavorable estimated effects of state income taxes and permanent differences. For the three months ended October 31, 2023, we reported income tax expense in the amount of approximately $6.1 million, which represented an effective tax rate of 52.9% for the period. This effective tax rate differed from the statutory federal tax rate due primarily to the unrecognized tax loss benefit of the net operating loss incurred by the subsidiary of APC located in the U.K.

Net Income

For the three months ended October 31, 2024, our overall operating profit performance resulted in net income in the amount of $28.0 million, or $2.00 per diluted share. For the comparable period last year, we reported net income in the amount of $5.5 million, or $0.40 per diluted share.

Comparison of the Results of Operations for the Nine Months Ended October 31, 2024 and 2023

The following schedule compares our operating results for the nine months ended October 31, 2024 and 2023 (dollars in thousands):

Revenues

Consolidated revenues for the nine months ended October 31, 2024 were $641.7 million, which represented an increase of $232.9 million, or 57.0%, from consolidated revenues of $408.8 million reported for the nine months ended October 31, 2023. The overall improvement in revenues was due to increases in revenues for all three of our reportable segments, as presented in the table above.

Power Industry Services

The revenues of the power industry services segment, representing the businesses of GPS and APC, increased by 67.1%, or $199.3 million, to $496.1 million for the nine months ended October 31, 2024 compared with revenues of $296.8 million for the nine months ended October 31, 2023 as the construction activities increased for the Midwest Solar and Battery Projects, the Trumbull Energy Center, the 405 MW Midwest Solar Project and the Louisiana LNG Facility. The increase in revenues between periods was partially offset by decreased construction activities associated with the Guernsey Power Station project, the ESB FlexGen Peaker Plants, the Shannonbridge Power Project and the Kilroot Project, as those projects have concluded. The revenues of this business segment represented approximately 77.3% of consolidated revenues for the nine months ended October 31, 2024 and 72.6% of consolidated revenues for the nine months ended October 31, 2023.

The primary drivers for this segment’s revenues for the nine months ended October 31, 2023, were the construction activities of the Shannonbridge Power Project, the Trumbull Energy Center and the ESB FlexGen Peaker Plants.

Industrial Construction Services

The revenues of our industrial construction services segment, representing the business of TRC, increased by $33.2 million, or 32.7%, to $134.7 million for the nine months ended October 31, 2024 compared to revenues of $101.5 million for the nine months ended October 31, 2023 as the amounts of field services construction activities increased meaningfully between periods, partially offset by decreased supporting vessel fabrication work between periods. For the nine months ended October 31, 2024 and 2023, the revenues of this segment represented 21.0% and 24.8% of consolidated revenues for the corresponding periods.

Telecommunications Infrastructure Services

The revenue results of this business segment, which represent the business of SMC, were $10.9 million for the nine-month period ended October 31, 2024, an increase of $0.4 million, or 4.2%, from the amount of revenues earned during the nine months ended October 31, 2023.

Cost of Revenues

With the increase in consolidated revenues for the nine months ended October 31, 2024 compared with the nine months ended October 31, 2023, the consolidated cost of revenues also increased between the quarters. These costs were $548.3 million and $351.6 million for the nine-month periods ended October 31, 2024 and 2023, respectively, representing an increase of approximately 56.0%.

For the nine-month period ended October 31, 2024, we reported a consolidated gross profit of approximately $93.4 million, which represented a gross profit percentage of approximately 14.6% of corresponding consolidated revenues. For the nine-month period ended October 31, 2023, we reported a consolidated gross profit of approximately $57.2 million, which represented a gross profit percentage of approximately 14.0% of corresponding consolidated revenues. The gross profit percentage increased between periods primarily due to the changing mix of projects and contract types. Additionally, during the nine-month periods ended October 31, 2024 and 2023, gross profit was negatively impacted by losses recorded on the Kilroot Project, which reduced margins by approximately $2.6 million and $11.5 million, respectively. The gross profit percentages of corresponding revenues for the power industry services, industrial construction services and the telecommunications infrastructure services segments were 14.8%, 12.5% and 26.8%, respectively, for the nine months ended October 31, 2024.

The gross profit percentages of corresponding revenues for the power industry services, industrial construction services and the telecommunications infrastructure services segments were 14.0%, 12.8% and 25.1%, respectively, for the nine months ended October 31, 2023.

Selling, General and Administrative Expenses

These costs were $37.8 million and $32.5 million for the nine months ended October 31, 2024 and 2023, respectively, and represented 5.9% and 7.9% of corresponding consolidated revenues, respectively.

Other Income, Net

Other income, net, for the nine months ended October 31, 2024 was $17.0 million, which reflected income earned during the period on investments in the total amount of approximately $14.0 million, as the weighted average balances of investments are meaningfully higher this year, and earnings related to cash and cash equivalent balances.

Other income, net, for the nine months ended October 31, 2023 was $7.2 million, which reflected income earned during the period on investments in the total amount of approximately $9.7 million, partially offset by the wire-transfer fraud loss of $3.0 million that occurred and was recorded in the first quarter of Fiscal 2024.

Income Taxes

We incurred income tax expense for the nine months ended October 31, 2024 in the amount of approximately $18.5 million, which represents an effective income tax rate of 25.5%. This effective tax rate differs from the statutory federal tax rate of 21% due primarily to the typically unfavorable estimated effects of state income taxes. For the nine months ended October 31, 2023, we reported income tax expense in the amount of approximately $11.6 million, which represented an effective tax rate of 36.3% for the period. This effective tax rate differed from the statutory federal tax rate due primarily to the unrecognized tax loss benefit of the net operating loss incurred by the subsidiary of APC located in the U.K.

Net Income

For the nine months ended October 31, 2024, our overall operating profit performance resulted in net income in the amount of $54.1 million, or $3.91 per diluted share. For the comparable period last year, we reported net income in the amount of $20.3 million, or $1.50 per diluted share.

Liquidity and Capital Resources as of October 31, 2024

At October 31 and January 31, 2024, our balances of cash and cash equivalents were $175.3 million and $197.0 million, respectively, which represented a decrease of $21.7 million during the current fiscal year.

The net amount of cash provided by operating activities for the nine months ended October 31, 2024 was $123.0 million. Our net income for the nine months ended October 31, 2024, adjusted favorably by the net amount of non-cash income and expense items, represented a source of cash in the total amount of $66.6 million. The temporary increase in contract liabilities of $89.6 million represented a source of cash, primarily due to the net effect of the early phase of construction activities on certain GPS projects. The increase in the combined level of accounts payable and accrued expenses in the amount of $43.7 million represented a meaningful source of cash during the period as well. The decrease in contract assets of $3.6 million and the decrease of other assets of $4.5 million represented sources of cash during the period. The increase of accounts receivable in the amount of $85.1 million, which represented a use of cash during the period, was due primarily to the increase in revenues during the period, but also related to the Kilroot Project.

During the nine months ended October 31, 2024, our primary source of cash from investing activities was the net maturities of CDs issued by the Bank, in the amount of $17.5 million. We used $100.8 million, net of maturities, to invest in available-for-sale securities consisting of U.S. Treasury notes and a U.S. corporate debt security. We also used $3.3 million to fund our remaining capital contribution obligation to a solar energy project and $5.2 million for the purchases of property, plant and equipment.

For the nine months ended October 31, 2024, we used $17.6 million cash in financing activities, including $13.3 million used for the payment of regular cash dividends and $0.6 million used to repurchase shares of common stock pursuant to our share repurchase program. We also used $3.7 million for share-based award settlements, which represented the net of payments of $10.1 million for withholding taxes reimbursed by shares of common stock and $6.4 million of proceeds from the exercise of stock options during the period. As of October 31, 2024, there were no restrictions with respect to intercompany payments between the holding company, GPS, TRC, APC and SMC.

At October 31, 2024, a portion of our balance of cash and cash equivalents was invested in a money market fund with most of its net assets invested in cash, U.S. Treasury notes and repurchase agreements secured by U.S. government obligations. The major portion of our domestic operating bank account balances are maintained with the Bank. We do maintain 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. Other investments of our available cash, which included CDs, U.S. Treasury notes and a corporate debt security, totaled approximately $330.9 million as of October 31, 2024, are classified as current assets.

In order to monitor the actual and necessary levels of liquidity for our business, we focus on net liquidity, or working capital, in addition to our cash balances. During the nine months ended October 31, 2024, our net liquidity increased by $36.1 million to $281.0 million from $244.9 million as of January 31, 2024, due primarily to our net income for the period, partially offset by the payment of cash dividends. As we have no debt service, as our fixed asset acquisitions in a reporting period are typically low, and as our net liquidity includes our investments, our levels of working capital are not subjected to the volatility that affects our levels of cash and cash equivalents.

On May 24, 2024, we executed a New Credit Agreement with the Bank, which supersedes the Expired Credit Agreement, as amended, that was executed on May 15, 2017 and expired on May 31, 2024. The New Credit Agreement reduces the base lending commitment amount from $50.0 million to $35.0 million, increases the letter of credit fees to be consistent with current market conditions, and establishes the interest rate for revolving loans at SOFR plus 1.85%. In addition to the base commitment, the facility includes an accordion feature that allows for an additional commitment amount of $30.0 million, subject to certain conditions, that represents an increase from the $10.0 million accordion provided by the Expired

Credit Agreement. We may use the borrowing ability to cover other credit instruments issued by the Bank for our use in the ordinary course of business as defined in the New Credit Agreement. Further, on May 31, 2024, we completed the negotiation of a companion facility, in the amount of $25.0 million, pursuant to which APCL may cause the Bank’s European entity to issue letters of credit on its behalf that will be secured by a blanket parent company guarantee issued by the Company to the Bank.

Together, the New Credit Agreement, the companion facility, and the parent company guarantee are hereinafter referred to as the “Credit Facilities.” The Credit Facilities include customary terms, covenants and events of default for credit facilities of this size and nature. Despite the reduction in the base amount of the credit commitment provided by the New Credit Agreement, the increased accordion amount and the addition of the companion facility provide the Company with greater flexibility in managing its credit requirements, at a potentially lower overall cost.

At October 31, 2024 and January 31, 2024, we did not have any borrowings outstanding under the New Credit Agreement and Expired Credit Agreement, respectively. At October 31, 2024, there were no outstanding letters of credit issued under the Credit Facilities.

We have pledged the majority of the Company’s assets to secure our 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 New Credit Agreement requires that the Company comply with certain financial covenants at its fiscal year-end and at each fiscal quarter-end. The New Credit Agreement 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 October 31, 2024, we were in compliance with the covenants and other requirements of the New Credit Agreement.

In the normal course of business and for certain major projects, we may be required to obtain surety or performance bonding, to provide parent company guarantees, or to cause the issuance of letters of credit (or some combination thereof) in order to provide performance assurances to clients on behalf of one of our subsidiaries. If our services under a guaranteed project would not be completed or would be determined to have resulted in a material defect or other material deficiency, then we could be responsible for monetary damages or other legal remedies. As is typically required by any surety bond, we would be obligated to reimburse the issuer of any surety bond for any cash payments made thereunder. The commitments under performance bonds generally end concurrently with the expiration of the related contractual obligation. Not all of our projects require bonding.

As of October 31, 2024, the estimated amounts of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, was approximately $0.3 billion. As of October 31, 2024, the outstanding amount of bonds covering other risks, including warranty obligations and contract payment retentions related to completed activities, was $22.9 million.

We have also provided a financial guarantee, subject to certain terms and conditions, up to the amount of $3.6 million in support business development efforts. An estimated loss related to this guarantee was recorded during Fiscal 2022.

In prior years, we made investments in limited liability companies that make equity investments in solar energy projects that are eligible to receive energy tax credits, for which we have received substantially all of the income tax benefits associated with those investments. In Fiscal 2024, we made an investment of approximately $5.1 million cash in a solar tax credit entity. During the nine months ended October 31, 2024, we made the final $3.3 million cash payment committed to this solar fund. It is likely that we will evaluate opportunities to make other solar energy investments of this type in the future.

We believe that cash on hand, our cash equivalents, cash that will be provided from the maturities of short-term investments and other debt securities and cash generated from our future operations, with or without funds available under our New Credit Agreement, will be adequate to meet our general business needs in the foreseeable future. In general, we maintain significant liquid capital in our consolidated balance sheet to ensure the maintenance of our bonding capacity and to provide parent company performance guarantees for EPC and other construction projects, in addition to supporting our operations with necessary working capital.

However, any significant future acquisition, investment or other unplanned cost or cash requirement, may require us to raise additional funds through the issuance of debt and/or equity securities. There can be no assurance that such financing will be available on terms acceptable to us, or at all.

Earnings before Interest, Taxes, Depreciation and Amortization (“EBITDA”)

The tables following immediately below present the determinations of EBITDA for the three and nine months ended October 31, 2024 and 2023, respectively (amounts in thousands).

We believe that EBITDA is a meaningful presentation that enables us to assess and compare our operating performance on a consistent basis by removing from our operating results the impacts of our capital structure, the effects of the accounting methods used to compute depreciation and amortization and the effects of operating in different income tax jurisdictions. Further, we believe that EBITDA is widely used by investors and analysts as a measure of performance.

However, as EBITDA is not a measure of performance calculated in accordance with U.S. GAAP, we do not believe that this measure should be considered in isolation from, or as a substitute for, the results of our operations presented in accordance with U.S. GAAP that are included in our condensed consolidated financial statements. In addition, our EBITDA does not necessarily represent funds available for discretionary use and is not necessarily a measure of our ability to fund our cash needs.

Critical Accounting Policies

Critical accounting policies are those related to the areas where we have made what we consider to be particularly subjective or complex judgments in arriving at estimates and where these estimates can significantly impact our financial results under different assumptions and conditions.

These estimates, judgments, and assumptions affect the reported amounts of assets, liabilities and equity, the disclosure of contingent assets and liabilities at the date of financial statements and the reported amounts of revenues and expenses during the reporting periods. We base our estimates on historical experience and various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets, liabilities and equity that are not readily apparent from other sources. Actual results and outcomes could differ from these estimates and assumptions. We do periodically review these critical accounting policies and estimates with the audit committee of our board of directors.

We consider the accounting policies related to revenue recognition on long-term construction contracts; income tax reporting; and the financial reporting associated with any significant claims or legal matters to be most critical to the understanding of our financial position and results of operations. An expanded discussion of our critical accounting policies is included in Item 7 of Part II of our Annual Report. During the nine months ended October 31, 2024, there have been no material changes in the way we apply the critical accounting policies described therein.

Recently Issued Accounting Pronouncements

See Note 1 to the accompanying condensed consolidated financial statements for discussion on recently issued accounting pronouncements.

In the normal course of business, our results of operations may be subject to risks related to fluctuations in interest rates; changes in foreign currency exchange rates; fluctuations in prices for commodities including steel products, copper, lumber, concrete and fuel; and global supply disruptions, among other market risks.

In the “Risk Factors” section of our Annual Report, we included discussion of the risks to our fixed price contracts if actual contract costs rise above the estimated amounts of such costs that support corresponding contract prices. Identified as factors that could cause contract cost overruns, project delays or other unfavorable effects on our contracts, among other circumstances and events, are delays in the scheduled deliveries of machinery and equipment ordered by us or project owners, unforeseen increases in the costs of labor, warranties, raw materials, components or equipment or the failure or inability to obtain resources when needed.

There have been no material changes to the Company’s market risks during the nine months ended October 31, 2024. For a broader discussion of the Company’s exposure to market risks, refer to the Company’s market risk disclosures set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the Annual Report.

Evaluation of disclosure controls and procedures. Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of October 31, 2024. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of October 31, 2024, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified by the SEC, and the material information related to the Company and its consolidated subsidiaries is made known to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure in the reports.

Changes in internal controls over financial reporting. There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15 and 15d-15 under the Exchange Act) during the fiscal quarter ended October 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.