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

October 31, ~~2021~~2022


☐	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 ”,~~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, ~~$.15~~$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: ~~15,714,745~~13,576,285 shares as of December ~~7, 2021.~~6, 2022.

ARGAN, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended				Nine Months Ended				Three Months Ended				Nine Months Ended
	October 31,				October 31,				October 31,				October 31,
	2021		2020		2021		2020		2022		2021		2022		2021
REVENUES	$	124,451	$	127,331	$	383,800	$	274,971	$	117,875	$	124,451	$	336,262	$	383,800
Cost of revenues		98,316		106,988		306,299		234,989		95,667		98,316		269,929		306,299
GROSS PROFIT		26,135		20,343		77,501		39,982		22,208		26,135		66,333		77,501
Selling, general and administrative expenses		11,590		9,398		31,813		28,827		12,667		11,590		34,226		31,813
INCOME FROM OPERATIONS		14,545		10,945		45,688		11,155		9,541		14,545		32,107		45,688
Other income, net		1,117		175		1,569		1,714		768		1,117		1,868		1,569
INCOME BEFORE INCOME TAXES		15,662		11,120		47,257		12,869		10,309		15,662		33,975		47,257
Income tax (expense) benefit		(3,269)		(1,666)		(11,228)		1,391
Income tax expense										(2,551)		(3,269)		(14,510)		(11,228)
NET INCOME		12,393		9,454		36,029		14,260		7,758		12,393		19,465		36,029
Net loss attributable to non-controlling interests		—		—		—		(40)
NET INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.		12,393		9,454		36,029		14,300
Foreign currency translation adjustments		(471)		(321)		(728)		(650)		(650)		(471)		(2,601)		(728)
COMPREHENSIVE INCOME ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.	$	11,922	$	9,133	$	35,301	$	13,650
COMPREHENSIVE INCOME									$	7,108	$	11,922	$	16,864	$	35,301

NET INCOME PER SHARE ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN, INC.
NET INCOME PER SHARE
Basic	$	0.79	$	0.60	$	2.29	$	0.91	$	0.56	$	0.79	$	1.36	$	2.29
Diluted	$	0.78	$	0.60	$	2.25	$	0.91	$	0.56	$	0.78	$	1.36	$	2.25

WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic		15,774		15,680		15,757		15,659		13,781		15,774		14,268		15,757
Diluted		15,963		15,833		15,980		15,795		13,812		15,963		14,350		15,980

CASH DIVIDENDS PER SHARE	$	0.25	$	0.25	$	0.75	$	1.75	$	0.25	$	0.25	$	0.75	$	0.75

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)


	October 31,		January 31,		October 31,		January 31,
	2021		2021		2022		2022
	(Unaudited)		(Note 1)		(Unaudited)		(Note 1)
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	391,563	$	366,671	$	136,065	$	350,472
Short-term investments		90,001		90,055		150,566		90,026
Accounts receivable		35,793		28,713
Accounts receivable, net						37,899		26,978
Contract assets		9,908		26,635		11,551		4,904
Other current assets (Note 10)		32,454		34,146
Other current assets						28,884		34,904
TOTAL CURRENT ASSETS		559,719		546,220		364,965		507,284
Property, plant and equipment, net		18,385		20,361		10,504		10,460
Goodwill		27,943		27,943		28,033		28,033
Other purchased intangible assets, net		3,417		4,097		2,730		3,322
Deferred taxes		—		249
Right-of-use and other assets		3,689		3,760
Right-of-use, deferred tax and other assets						4,671		4,486
TOTAL ASSETS	$	613,153	$	602,630	$	410,903	$	553,585

LIABILITIES AND EQUITY
CURRENT LIABILITIES
Accounts payable	$	39,959	$	53,295	$	45,268	$	41,822
Accrued expenses		42,672		50,750		40,243		53,315
Contract liabilities		176,414		172,042		49,031		127,890
TOTAL CURRENT LIABILITIES		259,045		276,087		134,542		223,027
Deferred taxes		133		—
Other noncurrent liabilities		4,180		4,135
Noncurrent liabilities						4,621		4,963
TOTAL LIABILITIES		263,358		280,222		139,163		227,990

COMMITMENTS AND CONTINGENCIES (Notes 7 and 8)
COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY
Preferred stock, par value $0.10 per share – 500,000 shares authorized; 0 shares issued and outstanding		—		—
Common stock, par value $0.15 per share – 30,000,000 shares authorized; 15,787,673 and 15,706,202 shares issued at October 31, 2021 and January 31, 2021, respectively; 15,784,440 and 15,702,969 shares outstanding at October 31, 2021 and January 31, 2021, respectively		2,368		2,356
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; 15,827,772 and 15,788,673 shares issued at October 31, 2022 and January 31, 2022, respectively; 13,575,772 and 15,257,688 shares outstanding at October 31, 2022 and January 31, 2022, respectively						2,374		2,368
Additional paid-in capital		157,187		153,282		161,305		158,190
Retained earnings		190,308		166,110		197,567		188,690
Less treasury stock, at cost – 2,252,000 and 530,985 shares at October 31, 2022 and January 31, 2022, respectively						(83,657)		(20,405)
Accumulated other comprehensive loss		(1,809)		(1,081)		(5,052)		(2,451)
TOTAL STOCKHOLDERS’ EQUITY		348,054		320,667		272,537		326,392
Non-controlling interests		1,741		1,741
Non-controlling interest						(797)		(797)
TOTAL EQUITY		349,795		322,408		271,740		325,595
TOTAL LIABILITIES AND EQUITY	$	613,153	$	602,630	$	410,903	$	553,585

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 NINE MONTHS ENDED OCTOBER 31, ~~2021~~2022 AND ~~2020~~2021

(Dollars in thousands)

(Unaudited)

Common Stock

Additional

Accumulated


Outstanding

Par

Paid-in

Retained

Other Comprehensive

Non-controlling

Total

Shares

Value

Capital

Earnings

Loss

Interests

Equity
Balances, August 1, 2021

15,769,440

$
2,366

$
155,904

$
181,862

$
(1,338)

$
1,741

$
340,535
Net income

—

—

—

12,393

—

—

12,393
Foreign currency translation loss

—

—

—

—

(471)

—

(471)
Stock compensation expense

—

—

913

—

—

—

913
Stock option exercises

15,000

2

370

—

—

—

372
Cash dividends

—

—

—

(3,947)

—

—

(3,947)
Balances, October 31, 2021

15,784,440

$
2,368

$
157,187

$
190,308

$
(1,809)

$
1,741

$
349,795

Balances, August 1, 2020

15,669,969

$
2,351

$
150,847

$
170,653

$
(1,445)

$
1,741

$
324,147
Net income

—

—

—

9,454

—

—

9,454
Foreign currency translation loss

—

—

—

—

(321)

—

(321)
Stock compensation expense

—

—

786

—

—

—

786
Stock option exercises

20,000

3

516

—

—

—

519
Cash dividends

—

—

—

(3,921)

—

—

(3,921)
Balances, October 31, 2020

15,689,969

$
2,354

$
152,149

$
176,186

$
(1,766)

$
1,741

$
330,664

Balances, February 1, 2021

15,702,969

$
2,356

$
153,282

$
166,110

$
(1,081)

$
1,741

$
322,408
Net income

—

—

—

36,029

—

—

36,029
Foreign currency translation loss

—

—

—

—

(728)

—

(728)
Stock compensation expense

—

—

2,521

—

—

—

2,521
Stock option exercises and other share-based award settlements

81,471

12

1,384

—

—

—

1,396
Cash dividends

—

—

—

(11,831)

—

—

(11,831)
Balances, October 31, 2021

15,784,440

$
2,368

$
157,187

$
190,308

$
(1,809)

$
1,741

$
349,795

Balances, February 1, 2020

15,634,969

$
2,346

$
148,713

$
189,306

$
(1,116)

$
1,781

$
341,030
Net income (loss)

—

—

—

14,300

—

(40)

14,260
Foreign currency translation loss

—

—

—

—

(650)

—

(650)
Stock compensation expense

—

—

2,199

—

—

—

2,199
Stock option exercises

55,000

8

1,237

—

—

—

1,245
Cash dividends

—

—

—

(27,420)

—

—

(27,420)
Balances, October 31, 2020

15,689,969

$
2,354

$
152,149

$
176,186

$
(1,766)

$
1,741

$
330,664


	Common Stock			Additional						Accumulated
	Outstanding	Par		Paid-in		Retained		Treasury		Other Comprehensive		Non-controlling		Total
	Shares	Value		Capital		Earnings		Stock		Loss		Interest		Equity
Balances, August 1, 2022	13,884,195	$	2,374	$	160,229	$	193,205	$	(73,573)	$	(4,402)	$	(797)	$	277,036
Net income	—		—		—		7,758		—		—		—		7,758
Foreign currency translation loss	—		—		—		—		—		(650)		—		(650)
Stock compensation expense	—		—		1,076		—		—		—		—		1,076
Common stock repurchases	(308,423)		—		—		—		(10,084)		—		—		(10,084)
Cash dividends	—		—		—		(3,396)		—		—		—		(3,396)
Balances, October 31, 2022	13,575,772	$	2,374	$	161,305	$	197,567	$	(83,657)	$	(5,052)	$	(797)	$	271,740

Balances, August 1, 2021	15,769,440	$	2,366	$	155,937	$	181,862	$	(33)	$	(1,338)	$	1,741	$	340,535
Net income	—		—		—		12,393		—		—		—		12,393
Foreign currency translation loss	—		—		—		—		—		(471)		—		(471)
Stock compensation expense	—		—		913		—		—		—		—		913
Stock option exercises	15,000		2		370		—		—		—		—		372
Cash dividends	—		—		—		(3,947)		—		—		—		(3,947)
Balances, October 31, 2021	15,784,440	$	2,368	$	157,220	$	190,308	$	(33)	$	(1,809)	$	1,741	$	349,795

Balances, February 1, 2022	15,257,688	$	2,368	$	158,190	$	188,690	$	(20,405)	$	(2,451)	$	(797)	$	325,595
Net income	—		—		—		19,465				—		—		19,465
Foreign currency translation loss	—		—		—		—		—		(2,601)		—		(2,601)
Stock compensation expense	—		—		3,055		—		—		—		—		3,055
Stock option exercises and other share-based award settlements	39,099		6		60		—		—		—		—		66
Common stock repurchases	(1,721,015)		—		—		—		(63,252)		—		—		(63,252)
Cash dividends	—		—		—		(10,588)		—		—		—		(10,588)
Balances, October 31, 2022	13,575,772	$	2,374	$	161,305	$	197,567	$	(83,657)	$	(5,052)	$	(797)	$	271,740

Balances, February 1, 2021	15,702,969	$	2,356	$	153,315	$	166,110	$	(33)	$	(1,081)	$	1,741	$	322,408
Net income	—		—		—		36,029		—		—		—		36,029
Foreign currency translation loss	—		—		—		—		—		(728)		—		(728)
Stock compensation expense	—		—		2,521		—		—		—		—		2,521
Stock option exercises and other share-based award settlements	81,471		12		1,384		—		—		—		—		1,396
Cash dividends	—		—		—		(11,831)		—		—		—		(11,831)
Balances, October 31, 2021	15,784,440	$	2,368	$	157,220	$	190,308	$	(33)	$	(1,809)	$	1,741	$	349,795

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)

Nine Months Ended October 31,


2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$
36,029

$
14,260

Adjustments to reconcile net income to net cash provided by operating activities

Lease expense

3,017

1,318

Depreciation

2,560

2,798

Stock compensation expense

2,521

2,199

Amortization of purchased intangible assets

680

677

Deferred income tax expense

383

8,366

Other

390

593

Changes in operating assets and liabilities

Accounts receivable

(7,084)

6,585

Contract assets

16,727

6,156

Other assets

2,070

(15,976)

Accounts payable and accrued expenses

(19,966)

27,725

Contract liabilities

4,372

87,859

Net cash provided by operating activities

41,699

142,560

CASH FLOWS FROM INVESTING ACTIVITIES

Maturities of short-term investments

90,000

170,000

Purchases of short-term investments

(90,000)

(100,000)

Investment in solar energy projects

(4,085)

—

Purchases of property, plant and equipment

(1,123)

(1,412)

Net cash (used in) provided by investing activities

(5,208)

68,588

CASH FLOWS FROM FINANCING ACTIVITIES

Payments of cash dividends

(11,831)

(27,420)

Proceeds from the exercise of stock options

1,396

1,245

Net cash used in financing activities

(10,435)

(26,175)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH

(1,164)

877

NET INCREASE IN CASH AND CASH EQUIVALENTS

24,892

185,850

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

366,671

167,363

CASH AND CASH EQUIVALENTS, END OF PERIOD

$
391,563

$
353,213

SUPPLEMENTAL CASH FLOW INFORMATION (Notes 7 and 10)


	Nine Months Ended October 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	19,465	$	36,029
Adjustments to reconcile net income to net cash (used in) provided by operating activities
Stock compensation expense		3,055		2,521
Depreciation		2,296		2,560
Lease expense		1,871		3,017
Equity in (income) loss of solar energy investments		(1,112)		404
Amortization of purchased intangible assets		611		680
Deferred income tax (benefit) expense		(209)		383
Other		(770)		(14)
Changes in operating assets and liabilities
Accounts receivable		(10,921)		(7,084)
Contract assets		(6,647)		16,727
Other assets		6,184		2,070
Accounts payable and accrued expenses		(7,952)		(19,966)
Contract liabilities		(78,859)		4,372
Net cash (used in) provided by operating activities		(72,988)		41,699

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments		(249,750)		(90,000)
Maturities of short-term investments		190,000		90,000
Purchases of property, plant and equipment		(2,582)		(1,123)
Investments in solar energy projects		—		(4,085)
Net cash used in investing activities		(62,332)		(5,208)

CASH FLOWS FROM FINANCING ACTIVITIES
Common stock repurchases		(63,252)		—
Payments of cash dividends		(10,588)		(11,831)
Proceeds from the exercise of stock options		66		1,396
Net cash used in financing activities		(73,774)		(10,435)

EFFECTS OF EXCHANGE RATE CHANGES ON CASH		(5,313)		(1,164)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(214,407)		24,892
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		350,472		366,671
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	136,065	$	391,563

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

~~October~~OCTOBER 31, ~~2021~~2022

(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, operations management, maintenance, project development, technical and other consulting services to the power generation market, including the renewable energy sector. The wide range of customers includes independent power producers, public utilities, power plant equipment suppliers and ~~global~~other energy plant construction firms with projects located in the United States (the ~~“US”~~“U.S.”), the Republic of Ireland (“Ireland”) and the United Kingdom (the ~~“UK”~~“U.K.”). ~~Including a consolidated variable interest entity (“VIE”),~~ GPS and APC represent the Company’s power industry services reportable segment. Through TRC, the industrial fabrication and field services reportable segment provides on-site services that support maintenance turnarounds, shutdowns and emergency mobilizations for industrial ~~plants~~operations primarily located in the southeastern region of the USU.S. and that are based on its expertise in producing, delivering and installing fabricated metal 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~~Mid-Atlantic region of the ~~US.~~U.S.

Basis of Presentation and Significant Accounting Policies

The condensed consolidated financial statements include the accounts of Argan, its wholly-owned subsidiaries and ~~its financially controlled VIE.~~a variable interest entity. 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 of each year. The condensed consolidated balance sheet as of October 31, ~~2021,~~2022, the condensed consolidated statements of earnings and stockholders’ equity for the three and nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, and the condensed consolidated statements of cash flows for the nine months ended October 31, ~~2021~~2022 and ~~2020~~2021 are unaudited. The condensed consolidated balance sheet as of January 31, ~~2021~~2022 has been derived from audited financial statements. These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the USU.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 (“USU.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, ~~2021~~2022 (“Fiscal ~~2021”~~2022”).

In the opinion of management, the accompanying condensed consolidated financial statements contain all adjustments, which are of a normal and recurring nature, considered necessary to present fairly the financial position of the Company as of October 31, ~~2021,~~2022, 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.

Accounting Policies

~~Income Taxes~~

~~In December 2019, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2019-12,~~ ~~Simplifying the Accounting for Income Taxes~~, which, among other changes, eliminates the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the expected loss for the entire year. In these instances, the estimated annual effective income tax rate shall be used to calculate the tax without limitation. The new standard also requires the recognition of a franchise (or similar) tax that is partially based on income as an income-based tax and the recording of any incremental tax that is incurred by the Company as a non-income based tax. The Company’s adoption of this new guidance, which was effective on February 1, 2021, did not alter the Company’s accounting for income taxes.

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.

Fair Values

The carrying value amounts presented in the condensed consolidated balance sheets for the Company’s current assets, which primarily include cash and cash equivalents, short-term investments, 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.

Variable Interest Entity

In January 2018, the Company was deemed to be the primary beneficiary of a ~~VIE~~variable interest entity (the “VIE”) that iswas performing the project development activities related to the planned construction of a new natural gas-fired power plant. ~~Consequently, the~~The account balances of the VIE ~~are~~have been included in the Company’s ~~condensed~~ consolidated financial statements, including development costs incurred by the VIE during the project development period. ~~The total amount of the project development costs included in the balances for property, plant and equipment as of October 31, 2021 and January 31, 2021 was $7.5 million at both dates.~~ Consideration for the Company’s engineering and financial support provided to the project ~~includes~~included the right to build the power plant pursuant to a turnkey engineering, procurement and construction (“EPC”) services contract that ~~has been~~was negotiated and announced.

~~Currently,~~GPS provided financing for the ~~most significant~~development efforts through notes receivable from the consolidated VIE that was established by the project ~~development hurdle~~owner. The project owner was unable to obtain the necessary equity financing for the project ~~owner is~~and GPS ceased providing project development funding. The repayment of the ~~establishment of a fuel-supply source for the plant. The understanding of~~notes to GPS is overdue. Accordingly, the Company believes that ~~there are viable gas supply alternatives under~~the completion of the development byof this project has been significantly jeopardized and that it is doubtful that construction of this power plant will occur. Accordingly, during the fourth quarter of Fiscal 2022, we recorded an impairment loss related to the capitalized development costs of this project in the amount of $7.9 million, of which $2.5 million was attributed to the non-controlling interest (i.e., the VIE). In March 2022, the project owner ~~and others. Recovery~~publicly announced the cancellation of ~~the Company’s investment in~~ this ~~project will depend on the successful completion of all project development efforts, which should lead to the arrangement of financing for the construction of the corresponding~~ power plant ~~or the sale of the~~ project. As currently contemplated, such financing or sale would provide cash flow sufficient for the project developer to repay the funds borrowed from GPS in full. Such repayment would represent a full recovery of GPS’s investment in the project.

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, as opposed to the transfer of risk and rewards. Major provisions of the current guidance cover the determination of which goods and services are distinct and represent separate performance obligations, the appropriate treatments for variable consideration, and the evaluation of whether revenues should be recognized at a point in time or over time.

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.

~~Almost~~7

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.

Contract assets include amounts that represent the rights to receive payment for goods or services that have been transferred to the project owner, 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. Contract retentions are billed amounts which, pursuant to the terms of the applicable contract, are not paid by project owners 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 ~~total of~~ amounts retained by project owners under construction contracts at October 31, ~~2021~~2022 and January 31, ~~2021~~2022 were ~~$41.3~~$49.4 million and ~~$36.8~~$40.4 million, respectively. The amount of revenues recognized during the nine months ended October 31, 2022 that was included in the balance of contract liabilities as of January 31, 2022 was approximately $109.9 million.

Variable Consideration

Amounts for contract variations 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 ~~may include~~includes in the corresponding transaction price ~~a portion~~an estimate of the amount ~~claimed in a dispute~~ that it expects to receive from a ~~project owner.~~claim based on management’s judgement regarding all reasonably available information. Once a ~~settlement of the dispute~~final amount has been ~~reached with the project owner,~~determined, the transaction price may be revised again to reflect the final resolution. ~~The~~At October 31, 2022 and January 31, 2022, the aggregate ~~amount~~amounts of such contract variations included in the transaction prices that were ~~used to determine project-to-date revenues at October 31, 2021 and January 31, 2021~~still pending customer acceptance were ~~$6.8~~$13.2 million and ~~$16.6~~$7.5 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.

~~Accounting for the Subcontract Loss~~

Construction activities that were performed by APC on the mechanical installation of the boiler for a biomass-fired power plant under construction in Teesside, England, the Tees Renewable Energy Plant (“TeesREP”), were suspended in March 2020 due to the COVID-19 pandemic, pending preparations being made by the contractors and subcontractors to comply with new and evolving government guidance concerning public health protocols. At the time of the suspension of work on the TeesREP project, APC had completed approximately 90% of its subcontracted work.

APC entered into an amendment to the subcontract with its customer, effective June 1, 2020, covering the various terms and conditions for completion of the installation of the boiler. The agreement represented a global settlement of past commercial differences with both parties making significant concessions, and converted the billing arrangements for the remaining work to a time-and-materials basis. During October 2020, APC and its customer agreed to additional contractual changes that effectively recognized APC’s completion of the single performance obligation and that established a time-and-materials contractual arrangement covering any additional works requested by APC’s customer until completion of APC’s engagement which occurred during the current year.

The accounting for the subcontract, as amended, resulted in reductions to the subcontract loss that were recorded during the three and nine months ended October 31, 2020, in the approximate amounts of $2.8 million and $4.1 million, respectively. Accordingly, the final amount of the TeesREP subcontract loss was $29.5 million, and the remaining subcontract loss reserve balance was eliminated as of October 31, 2020. The total amounts of accounts receivable and contract assets related to the TeesREP project and included in the condensed consolidated balance sheets were less than $0.1 million as of October 31, 2021 and were $4.7 million as of January 31, 2021.

Remaining Unsatisfied Performance Obligations (“RUPO”)

The amount of RUPO approximately represents the unrecognized revenue value of active contracts with customers as determined under the revenue recognition rules of USU.S. GAAP. ~~Increases~~It includes the unrecognized value of certain contracts that provide customers with the right to ~~RUPO during~~terminate a reporting period represent the transaction prices associated with new contracts, as well as additions to the transaction prices of existing contracts. The amounts of such changes may vary significantly each reporting period based on the timing of major new contract ~~awards and the occurrence and assessment of contract variations.~~for convenience but not without incurring substantive termination costs.

At October 31, ~~2021,~~2022, the Company had RUPO of ~~$491.6~~$328.1 million. The largest portion of RUPO at any date usually relates to 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 ~~25%~~30% of the RUPO amount at October 31, ~~2021~~2022 will be included in the amount of consolidated revenues that will be recognized during the remainder of the fiscal year ending January 31, ~~2022.~~2023 (“Fiscal 2023”). Most of the remaining amount of the RUPO amount at October 31, ~~2021~~2022 is expected to be recognized in revenues during the fiscal year ending January 31, ~~2023.~~2024 (“Fiscal 2024”).

~~Revenues for future periods will also include amounts related to customer contracts awarded subsequent to October 31, 2021.~~ 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 October 31, ~~2021.~~2022. 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 nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, disaggregated by the geographic area where the corresponding projects were located:


	Three Months Ended October 31,				Nine Months Ended October 31,				Three Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2021		2020		2022		2021		2022		2021
United States	$	110,196	$	109,241	$	349,066	$	241,616	$	81,810	$	110,196	$	256,031	$	349,066
Republic of Ireland		9,698		8,331		21,947		10,760		21,833		9,698		47,019		21,947
United Kingdom		4,496		9,759		12,283		22,595		14,232		4,496		33,212		12,283
Other		61		—		504		—		—		61		—		504
Consolidated Revenues	$	124,451	$	127,331	$	383,800	$	274,971	$	117,875	$	124,451	$	336,262	$	383,800

The major ~~portion~~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 SHORT-TERM INVESTMENTS

At October 31, ~~2021~~2022 and January 31, ~~2021, significant~~2022, certain amounts of cash equivalents were invested in ~~government and prime~~ money market funds with net assets invested in high-quality money market instruments. Such investments include USU.S. Treasury obligations; obligations of USU.S. government agencies, authorities, instrumentalities or sponsored enterprises; and repurchase agreements secured by USU.S. government obligations. ~~Due to market conditions, returns on money market instruments are currently minimal.~~ The Company considers all liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.

Short-term investments as of October 31, ~~2021~~2022 and January 31, ~~2021~~2022 consisted solely of certificates of deposit purchased from Bank of America (the “Bank”) with weighted average initial maturities of less than one ~~year.~~year (the “CDs”). The Company has the intent and ability to hold the CDs until they mature, and they are carried at cost plus accrued ~~interest which approximates fair value.~~interest. Interest income is recorded when earned and is included in other income. At October 31, ~~2021~~2022 and January 31, ~~2021,~~2022, the weighted average annual interest rates of the outstanding CDs were ~~0.1%~~2.5% and ~~0.2%~~0.1%, respectively.

The Company has a substantial portion of its cash on deposit in the ~~US.~~U.S. with the Bank. The Company also maintains certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the UKU.K. in support of the operations of APC. Management does not believe that the combined amount of the ~~CD investments~~CDs and the cash deposited with the Bank and cash balances maintained at financial institutions in Ireland and the ~~UK,~~U.K., in excess of government-insured levels, ~~represents a~~represent material ~~risk.~~risks.

NOTE 4 – ACCOUNTS AND NOTES RECEIVABLE

The Company generally extends credit to a customer based on an evaluation of the customer’s financial condition, without requiring tangible collateral. 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 provisions for~~any credit losses for the three and nine months ended October 31, ~~2021~~2022 and ~~2020~~2021 were insignificant. The ~~allowances~~allowance for credit losses ~~as of~~at both October 31, ~~2021~~2022 and January 31, ~~2021 were also insignificant.~~

As of October 31, 2021 and January 31, 2021, there were past due notes receivables from a project developer in the aggregate amount of $1.8 million, for which full receipt will most likely depend on the successful financing of the related project. The Company placed these notes receivables on a non-accrual status during Fiscal 2021.2022 was $2.4 million.

NOTE 5 – PURCHASED INTANGIBLE ASSETS

At both October 31, ~~2021~~2022 and January 31, ~~2021,~~2022, the goodwill balances related primarily to ~~the acquisitions of~~ GPS and TRC, and were $18.5 million and $9.5 million, respectively. Management does not believe that any events or circumstances ~~that have~~ occurred or ~~arisen~~arose since January 31, ~~2021 require~~2022, that required an updated assessment of the goodwill balances of either GPS or TRC.

The Company’s purchased intangible assets, other than goodwill, relate primarily to TRC and consisted of the following elements as of October 31, ~~2021~~2022 and January 31, ~~2021:~~2022:


		October 31, 2021						January 31,			October 31, 2022						January 31,
	Estimated	Gross		Accumulated		Net		2021, (net		Estimated	Gross		Accumulated		Net		2022, (net
	Useful Life	Amounts		Amortization		Amounts		amounts)		Useful Life	Amounts		Amortization		Amounts		amounts)
Trade names
TRC	15 years	$	4,499	$	1,775	$	2,724	$	2,949
GPS	15 years		3,643		3,617		26		208

Trade name										15 years	$	4,499	$	2,075	$	2,424	$	2,650
Process certifications	7 years		1,897		1,604		293		497	7 years		1,897		1,874		23		226
Customer relationships	10 years		916		542		374		443	10 years		916		633		283		351
Customer contracts										< 1 year		114		114		—		95
Totals		$	10,955	$	7,538	$	3,417	$	4,097		$	7,426	$	4,696	$	2,730	$	3,322

NOTE 6 – FINANCING ARRANGEMENTS

During April 2021, the Company amended its Amended and Restated Replacement Credit Agreement with the Bank (the “Credit Agreement”). The amendment extended the expiration date of the Credit Agreement to May 31, 2024 and reduced the borrowing rate. The Credit Agreement ~~as amended,~~ includes the following features, among others: a lending commitment of $50.0 million including a revolving loan with interest at the 30-day LIBOR plus 1.6% (reduced from 2.0%), 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.

At October 31, ~~2021,~~2022, the Company did not have any borrowings or outstanding ~~letters of credit issued~~ under the Credit Agreement. However, ~~subsequent to October 31, 2021,~~ the Bank has issued letters of credit in the total outstanding amount of ~~$19.9~~$8.2 million at October 31, 2022, in support of the activities of APC under ~~a new~~existing customer ~~contract.~~contracts. The comparable outstanding total amount of letters of credit at January 31, 2022 was $21.5 million. In connection with the ~~current~~ project development activities of the VIE that is described in Note 1, the Bank issued a letter of credit, outside the scope of the Credit Agreement, in the approximate amount of $3.4 million as of October 31, ~~2021~~2022 and January 31, ~~2021~~2022, for which the Company has provided cash collateral. As of October 31, 2022, no amounts have been drawn against this letter of credit.

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 Bank requires that the Company comply with certain financial covenants at its fiscal year-end and at each of its fiscal quarter-ends. 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 October 31, ~~2021~~2022 and January 31, ~~2021,~~2022, the Company was in compliance with the covenants of the Credit Agreement.

11The Company expects to amend the Credit Agreement before the end of Fiscal 2023 in order to replace LIBOR with an equivalent benchmark rate. The Company does not expect that the change will materially impact its consolidated financial statements.

NOTE 7 – COMMITMENTS

Leases

The Company’s leases are primarily operating leases ~~primarily~~that cover office space, ~~that expire~~expiring on various dates through September 2031, and certain equipment used by the Company in the performance of its construction services contracts. Some of these equipment leases ~~are~~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~~include significant amounts for incentives, rent holidays or price escalations. Under certain ~~lease agreements,~~leases, the Company is obligated to pay property taxes, insurance, and maintenance costs.

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 (currently LIBOR plus 1.6%) 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.

Operating lease expense amounts are recorded on a straight-line basis over the expected lease terms and were $0.6 million and $1.9 million for the three and nine months ended October 31, 2022, respectively, and were $1.1 million and $3.0 million for the three and nine months ended October 31, 2021, ~~respectively, and were $0.5 million and $1.3 million for the three and nine months ended October 31, 2020,~~ respectively. Operating lease payments for the three and nine months ended October 31, ~~2021~~2022 were $0.6 million and $1.9 million, respectively, and they were $1.1 million and $3.0 ~~million, respectively, and were $0.3 million and $1.2~~ million for the three and nine months ended October 31, ~~2020,~~2021, respectively. For operating leases as of October 31, ~~2021,~~2022, the weighted average lease term is 4178 months and the weighted average discount rate is ~~2.5%~~2.2%.

The Company also uses equipment and occupies other facilities under short-term rental agreements. Rent expense amounts incurred under operating leases and short-term rental agreements (including portions of the lease expense amounts disclosed above) and included in costs of revenues for the three and nine months ended October 31, 2021 were $2.8 million and $9.0 million, respectively. Rent expense incurred under these types of arrangements and included in costs of revenues for the three and nine months ended October 31, 2020 was $2.3 million and $4.2 million, respectively. Rent expense incurred under these types of arrangements (including portions of the lease expense amounts disclosed above) and included in selling, general and administrative expenses for the three and nine months ended October 31, 2021 was $0.3 million and $0.7 million, respectively. Rent expense incurred under these types of arrangements and included in selling, general and administrative expenses for the three and nine months ended October 31, 2020 was $0.2 million and $0.7 million, respectively.

The aggregate amounts of operating leases added during the nine months ended October 31, 2022 and 2021 were $0.9 million and ~~2020 were~~ $2.4 million, respectively.

Payments for the occupancy by TRC of certain facilities, which were made to the founder and ~~$2.3~~retired chief executive officer of TRC based on an annual rental rate of $0.5 million, ~~respectively.~~ and most recently on a month-to-month rental basis, ceased during the three-month period end October 31, 2022 as TRC vacated the facilities in connection with a plant relocation effort that was substantially completed during the period.

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 October 31, ~~2021.~~2022:


Years Ending January 31,	Years Ending January 31,			Years Ending January 31,
Remainder of 2022		$	755
2023			1,020
2023 (remainder)					$	396
2024			368			600
2025			214			395
2026			111			249
2027						231
Thereafter			537			1,028
Total lease payments			3,005			2,899
Less interest portion			93			177
Present value of lease payments			2,912			2,722
Less current portion (included in accrued expenses)			1,665			796
Non-current portion (included in other noncurrent liabilities)		$	1,247
Non-current portion (included in noncurrent liabilities)					$	1,926

The ~~future minimum lease payments presented above include~~Company also uses equipment and occupies other facilities under short-term rental agreements. Rent expense amounts ~~due~~incurred under ~~a long-term lease covering~~short-term rental agreements were $3.5 million and $8.8 million, respectively for the ~~primary offices~~three and ~~plant~~nine months ended October 31, 2022. Rent expense amounts incurred under these types of arrangements for ~~TRC with~~ the ~~founder~~three and ~~current chief executive officer of TRC at an annual rate of $0.3~~nine months ended October 31, 2021 was $1.7 million ~~with a term extending through April 30, 2022.~~and $6.6 million, respectively.

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 October 31, ~~2021~~2022 are not estimable.

As of October 31, ~~2021,~~2022 and January 31, 2022, the ~~value~~estimated amounts of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, ~~was~~were approximately ~~$272.4 million. In addition, as~~$0.1 billion and $0.2 billion, respectively. As of October 31, ~~2021, there were~~2022 and January 31, 2022, the outstanding amounts of bonds ~~outstanding in the aggregate amount of approximately $0.8 million~~ covering other risks, including warranty obligations related to completed ~~activities; these bonds expire at various dates over the next twelve months.~~activities, were not material. Not all of our projects require bonding.

As of October 31, ~~2021,~~2022 and January 31, 2022, the Company ~~has~~had also provided a financial guarantee, subject to certain terms and conditions, on behalf of GPS to an original equipment manufacturer in the amount of $3.6 million in support of business development efforts. ~~The Company believes that~~A liability was established for the ~~fair value of~~estimated loss related to this guarantee ~~as of October 31, 2021 is not material.~~during 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 ~~could~~are expected to have a material adverse effect on the condensed consolidated financial ~~statements as of October 31, 2021. During September 2021, GPS settled major litigation as described below.~~

In January 2019, GPS filed a lawsuit against Exelon West Medway II, LLC and Exelon Generation Company, LLC (together referred to as “Exelon”) in the US District Court for the Southern District of New York for Exelon’s breach of contract and failure to remedy various conditions which negatively impacted the schedule and the costs associated with the construction by GPS of a gas-fired power plant for Exelon in Massachusetts. In March 2019, Exelon provided GPS with a notice intending to terminate the EPC contract under which GPS had been providing services to Exelon. At that time, the construction project was nearly complete and both of the power generation units included in the plant had successfully reached first fire. Nevertheless, and among other actions, Exelon provided contractual notice requiring GPS to vacate the construction site. Exelon asserted that GPS failed to fulfill certain obligations under the contract and was in default, withholding payments from GPS on invoices rendered to Exelon in accordance with the terms of the contract between the parties.

In September 2021, Argan’s wholly owned subsidiary, GPS, reached a final settlement of all outstanding claims between the parties resulting in Exelon making a payment to GPS in the amount of $27.5 million which was in excess of the previously reported amount of receivables and contract assets. The excess amount was included in revenues.statements.

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. The Company’s board of directors may make share-based awards under the 2020 Plan to officers, directors and key employees. The 2020 Plan ~~replaces~~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 ~~made pursuant to the terms of the 2020 Plan~~ are documented in a written agreement between the Company and the awardee. All stock options awarded under the ~~2020 Plan shall~~Stock Plans have an exercise ~~price~~prices per share at least equal to the ~~common stock’s~~ market value per share of the Company’s common stock on the date of grant. Stock options ~~shall~~ 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 October 31, ~~2021,~~2022, there were ~~2,046,068~~1,939,402 shares of common stock reserved for issuance under the Stock Plans; this number includes ~~459,500~~236,146 shares of common stock available for future awards under the 2020 Plan.

Stock Options

A summary of stock option activity under the ~~Company’s approved~~ Stock Plans for the nine months ended October 31, ~~2021 and 2020,~~2022, along with corresponding weighted average per share amounts, is presented below (shares in thousands):


		Exercise		Remaining				Exercise		Remaining
	Shares	Price		Term (years)	Fair Value		Shares	Price		Term (years)	Fair Value
Outstanding, February 1, 2021	1,405	$	44.17	6.90	$	10.39
Outstanding, February 1, 2022							1,405	$	44.35	6.17	$	10.31
Granted	32	$	54.60				38	$	36.78
Exercised	(41)	$	34.05				(2)	$	32.68
Forfeited	(15)	$	50.21				(36)	$	48.98
Outstanding, October 31, 2022							1,405	$	44.04	5.61	$	10.17
Exercisable, October 31, 2022							1,188	$	44.76	5.11	$	10.69

Outstanding, October 31, 2021	1,381	$	44.64	6.32	$	10.46	1,381	$	44.64	6.32	$	10.46
Exercisable, October 31, 2021	1,053	$	45.51	5.66	$	11.18	1,053	$	45.51	5.66	$	11.18

Outstanding, October 31, 2020	1,364	$	44.14	6.96	$	10.52
Exercisable, October 31, 2020	865	$	46.40	5.97	$	11.76

The changes in the number of non-vested options to purchase shares of common stock for the nine months ended October 31, ~~2021 and 2020,~~2022, and the weighted average fair value per share for each number, are presented below (shares in thousands):


	Shares	Fair Value		Shares	Fair Value
Non-vested, February 1, 2021	467	$	8.01
Non-vested, February 1, 2022				295	$	7.80
Granted	32	$	11.12	38	$	6.68
Vested	(163)	$	8.43	(116)	$	8.32
Forfeitures	(8)	$	7.05
Non-vested, October 31, 2022				217	$	7.33

Non-vested, October 31, 2021	328	$	8.13	328	$	8.13

Non-vested, October 31, 2020	499	$	8.35

The total intrinsic value ~~amounts of~~related to the stock options exercised during the nine months ended October 31, 2021 ~~and 2020 were~~was $0.6 ~~million and $1.2 million, respectively. At~~million; the amount was not significant for the nine months ended October 31, ~~2021, the~~2022. The aggregate market value amounts of the shares of common stock subject to outstanding stock options and exercisable stock options that were “in-the-money” exceeded the aggregate exercise prices of such options at October 31, 2022 by ~~$4.3~~$1.2 million and ~~$3.4~~$1.1 million, respectively.

1413

Restricted Stock Units

The ~~changes in the maximum number of~~Company awards restricted stock units ~~for~~to senior executives, members of the Company’s board of directors and certain other employees. Awardees earn the right to receive shares of common stock as certain performance goals are achieved and/or service periods are satisfied. Each restricted stock unit expires on the three-year anniversary of the award.

During the nine months ended October 31, ~~2021, and the weighted average fair value per share for each number, are presented below (shares in thousands):~~

Shares

Fair Value
Outstanding, February 1, 2021

117

$
17.71
Awarded

128

$
39.84
Issued

(40)

$
20.64
Outstanding, October 31, 2021

205

$
31.00

Outstanding, October 31, 2020

117

$
17.71

~~Performance-Based Restricted Stock Units~~

~~Pursuant to the terms of the Stock Plans and as described in the corresponding agreements with the executives,~~2022, the Company awarded performance-based restricted stock units ~~to 4 senior executives in April 2021 and 2 senior executives in April 2020,~~ covering ~~up to 49,000 and 45,000 maximum total numbers of~~52,000 shares of common stock, ~~respectively, plus a number~~renewable (energy) performance-based restricted stock units covering 7,500 shares of common stock, time-based restricted stock units covering 72,500 shares ~~to be determined~~of common stock, and 2,604 shares based on the amount of cash dividends deemed paid on shares earned pursuant to the awards. The issuance of the number of shares earned under the agreements, free of related restrictions, depends on the total return performance of the Company’s common stock measured against the performance of a peer-group of common stocks over three-year periods.

During the nine months ended October 31, 2021, the three-year vesting period for the restricted stock units awarded in April 2018 concluded and it was determined that 40,471 shares of common stock, including shares attributable to cash dividends, were earned pursuant to the performance criteria and other terms of the 2011 Plan and the applicable award agreements. These shares were issued to the awardees in April 2021.

~~Renewable Performance-Based Restricted Stock Units~~

In April 2021, the Company awarded renewable energy project performance-based restricted stock units to 2 senior executives at GPS as described in the corresponding agreements with the executives. Each award covers 5,000 shares of the Company’s common stock plus a number of shares to be determined based on the amount of cash dividends deemed paid on shares earned pursuant to the awards. The issuance of the shares, free of restrictions, shall be based on the success of GPS in increasing the amount of RUPO related to renewable energy projects, as defined, during certain periods within the three-year term of each award. The awards establish RUPO hurdle amounts for separate periods of time defined in the awards, and assign a certain portion of the award shares to each hurdle. If a RUPO hurdle is exceeded (each is mutually exclusive), the number of shares earned based on the achievement of the applicable hurdle will be issued to the executives at the end of the corresponding period. If a RUPO hurdle amount is not achieved within the period of time defined in the awards, the award shares assigned to the hurdle are forfeited.

~~Time-Based Restricted Stock Units~~

During the nine months ended October 31, 2021, the Company ~~also~~ awarded 49,000 performance-based restricted stock units, 10,000 renewable performance-based restricted stock units and 65,000 time-based restricted stock ~~units covering a total~~units.

The changes in the maximum number of ~~65,000~~ shares of common stock ~~to senior executives and other employees~~issuable pursuant to outstanding restricted stock units for the ~~terms of~~nine months ended October 31, 2022, and the ~~Stock Plans and as described~~weighted average fair value per share for each restricted stock unit, are presented below (shares in ~~the corresponding agreements with each awardee. Most of the shares will vest in equal installments on each of the first 3 anniversaries of the award date. Accordingly, at each vesting date,~~ ~~one~~-third of the award shares plus a number of shares to be determined based on the amount of cash dividends deemed paid on shares earned pursuant to the awards will be issued to each awardee. Of the 15,500 shares awarded in September 2021, most of these shares will vest on the three-year anniversary of award.thousands):


	Shares	Fair Value
Outstanding, February 1, 2022	222	$	31.48
Awarded	135	$	27.22
Issued	(37)	$	38.51
Forfeited	(22)	$	40.85
Outstanding, October 31, 2022	298	$	29.42

Outstanding, October 31, 2021	205	$	31.00

Fair Value

The fair value amounts of stock options and restricted stock units are recorded as stock compensation expense on a straight-line basis over the terms of the corresponding awards. Expense amounts related to stock awards were ~~$0.9~~$1.1 million and ~~$0.8~~$0.9 million for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively. Expense amounts related to stock awards were ~~$2.5~~$3.1 million and ~~$2.2~~$2.5 million for the nine months ended October 31, 2022 and 2021, ~~and 2020,~~ respectively.

At October 31, ~~2021,~~2022, there was ~~$6.2~~$7.2 million in unrecognized compensation cost related to outstanding stock awards that the Company expects to expense over the next three years.

The Company estimates the weighted average fair value of stock options on the date of award using a Black-Scholes option pricing model. The Company believes that its past stock option exercise activity is sufficient to provide it with a reasonable basis upon which to estimate the expected life of newly awarded stock options. Risk-free interest rates are determined by blending the rates for ~~three~~three- ~~to five~~to-five year USU.S. Treasury notes. The dividend yield is based on the Company’s current annual regular dividend amount. The calculations of the expected volatility factors are based on the monthly closing prices of the Company’s common stock for the five-year periods preceding the dates of the corresponding awards.

The fair value amounts for the performance-based restricted stock units have been determined by using the per share market price of the ~~Company’s~~ common stock on the dates of award and, ~~the target number of shares for the awards (50% of the maximum number),~~ by assigning equal probabilities to the thirteen possible payout outcomes at the end of each three-year term, and by computing the weighted average of the outcome amounts. For each award, the estimated fair value amount was calculated to be 88.5% of the aggregate market value of the target number (which is 50% of the maximum number) of shares on the award date. For the renewable performance-based restricted stock units, ~~which were awarded for the first time in April 2021,~~ the fair value of each award was determined to be 50% of the aggregate market value of the shares of common stock covered by the award on the date of the award. For the time-based restricted stock units, the fair value of each award equals the aggregate market price for the number of shares covered by each award on the date of award.

NOTE 10 – INCOME TAXES

Income Tax Expense ~~Reconciliation~~Reconciliations

The Company’s income tax amounts for the nine months ended October 31, ~~2021~~2022 and ~~2020~~2021 differed from corresponding amounts computed by applying the federal corporate income tax rate of 21%to the income before income taxes for the periods as presented below:


	Nine Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2022		2021
Computed expected income tax expense	$	(9,924)	$	(2,702)	$	(7,135)	$	(9,924)
Difference resulting from:
State income taxes, net of federal tax effect		(1,015)		(40)		(486)		(1,015)
Net operating loss carryback benefit (see discussion below)		—		4,390
Adjustments and other differences		(289)		(257)
Income tax (expense) benefit	$	(11,228)	$	1,391
Research and development credits adjustment						(6,181)		—
Deferred tax adjustments						(68)		—
Other permanent differences and adjustments, net						(640)		(289)
Income tax expense					$	(14,510)	$	(11,228)

Foreign income tax expense amounts for the nine months ended October 31, 2022 and 2021 ~~was $0.5 million; the foreign tax expense amount for the nine months ended October 31, 2020 was~~were not material.

During the nine months ended October 31, 2021, the Company wrote-off previously established deferred tax assets in the amount of $0.3 million based on the estimated non-deductible portion of stock option compensation.

Net Operating Loss (“NOL”) Carryback

In an effort to combat the adverse economic impacts of the COVID-19 crisis, the USU.S. Congress passed the Coronavirus, Aid, Relief, and Economic Security Act ~~( the~~(the “CARES Act”) that was signed into law on March 27, 2020. This wide-ranging legislation was an emergency economic stimulus package that included spending and tax breaks aimed at strengthening the USU.S. economy and funding a nationwide effort to curtail the effects of the outbreak of COVID-19.

The tax changes of the CARES Act included a temporary suspension of the limitations on the future utilization of certain NOLs and re-established a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act include the Company’s domestic NOL for the year ended January 31, 2020 (“Fiscal 2020”), which was approximately $39.5 million. The Company made the appropriate filing with the Internal Revenue Service (the “IRS”) requesting carryback refunds of income taxes paid for the years ended January 31, 2017 (“Fiscal 2017”), 2016 (“Fiscal 2016”) and 2015 ~~(“Fiscal 2015”).~~

~~A deferred tax asset~~ in the total amount of ~~$8.3~~approximately $12.7 million ~~was recorded as of~~during the fiscal year ended January 31, ~~2020 associated with~~2021 (“Fiscal 2021”); the ~~income tax benefit~~IRS has not completed the processing of the NOL for the year then ended. With the enactment of the CARES Act, the asset was moved to income taxes receivable (included in other current assets in the condensed consolidated balance sheets as of October 31, 2021 and January 31, 2021) where the value was increased to approximately $12.7 million. The carryback provided a favorable rate benefit for the Company as the loss, which was incurred in a year where the statutory federal tax rate was 21%, has been carried back to tax years where the tax rate was higher. The substantial portion of the net amount of this additional income tax benefit, estimated at the time to be approximately ~~$4.2~~ ~~million, was recorded in the nine-month period ended October 31, 2020.~~Company’s refund request.

Research and Development Tax Credits

During the year ended January 31, 2019 (“Fiscal 2019”), the Company completed a detailed review of the activities of its engineering staff on major EPC services projects in order to identify and quantify the amounts of research and development tax credits that may have been available to reduce prior year income taxes. This study focused on project costs incurred during the three-year period ended January 31, 2018. Based on the results of the study, management identified and estimated significant amounts of income tax benefits that were not previously recognized in the Company’s operating results for any prior year reporting period.

The net amount of federal and state research and development tax credit benefit recognized in Fiscal 2019 was $16.6 million. During Fiscal 2020, deferred tax assets related to the research and development tax credits were reduced by $0.4 million. ~~As described below,~~The Company recorded a corresponding liability for uncertain income tax return positions related to identified but unrecognized research and development tax credit benefits in the amount of $5.0 million. Most of this liability was included in accrued expenses as of January 31, 2022.

During Fiscal 2021, the IRS ~~has~~ concluded examinations of the Company’s consolidated federal income tax returns for Fiscal 2016, ~~and~~as amended; Fiscal 2017, as ~~amended to include research~~amended; and ~~development tax credits, and has commenced an examination of the Company’s consolidated federal income tax return for~~ the year ended January 31, 2018 (“Fiscal 2018”) with ~~an expressed intent to~~its focus on the research and development tax ~~credit~~credits included therein. ~~All~~

In January 2021, the IRS issued its final revenue agents reports that documented its understanding of the ~~aforementioned filings were made prior~~facts, attempted to ~~January 31, 2019.~~

~~The amount~~summarize the Company’s arguments in support of ~~identified but unrecognized income tax benefits related to~~the research and development ~~tax credits as~~claims and stated its position which disagreed with the Company’s treatment of ~~October 31,~~a substantial amount of the costs that supported the Company’s claims. In March 2021, ~~is $5.0 million, for which~~ the Company ~~has established~~submitted a ~~liability for uncertain income tax return positions, most~~formal protest of ~~which is included~~the findings of the IRS examiner and requested an appeals hearing.

At the conclusion of the hearing that occurred in ~~accrued expenses as of October 31, 2021 and January 31, 2021. The final outcome of these uncertain tax positions is not yet determinable. However,~~May 2022, the Company ~~does not expect that~~agreed to accept a settlement offer from the IRS in the amount of ~~unrecognized tax benefits will significantly change due~~approximately $7.9 million, before interest. As a result, during the three-month period ended July 31,

2022, the Company made an unfavorable adjustment to any expiration of statutes of limitation over the next 12 months. However, it is possible that the disputes with the IRS related to the Company’s federal research and development tax credits (see discussion of income tax returns below) could be resolved within the next twelve months depending on the scheduling of an appeals hearing and/or the results of negotiations with the IRS. If resolution of the disputes occurs, it would result in the Company’s elimination of at least a substantial portion of the amount of theits liability for uncertain income tax positions ~~discussed above. As~~in the approximate amount of $6.2 million. Accordingly, this amount is included in income tax expense for the nine months ended October 31, ~~2021,~~2022.

The Company has also formally protested the conclusions reached by two states, where the Company ~~does~~filed tax returns reflecting the benefits of certain research and development credits, that the credits are not ~~believe~~allowable. The Company expects that ~~it has~~ any ~~other material uncertain~~unfavorable adjustments related to the ultimate settlement of the income tax ~~positions reflected in its accounts.~~disputes with the states will not be significant.

Income Tax Refunds

As of October 31, ~~2021~~2022 and January 31, ~~2021,~~2022, the balances of other current assets in the condensed consolidated balance sheet included income tax refunds receivable and prepaid income taxes in the total amounts of approximately ~~$25.9~~$15.8 million and ~~$26.9~~$29.5 million, respectively. The income tax refunds ~~include~~included the amounts that were expected to be received from the IRS upon completion of the tax return examination appeals process ~~identified below~~ and the amount expected to be received from the IRS upon its processing of the Company’s NOL carryback refund request ~~discussed~~as described above.

Income Tax Returns

The Company is subject to federal and state income taxes in the ~~US,~~U.S., and income taxes in Ireland and the ~~UK.~~U.K. Tax treatments within each jurisdiction are subject to the interpretation of the related tax laws and regulations which require significant ~~judgment~~judgments to apply. The Company is no longer subject to income tax examinations by authorities for its fiscal years ended on or before ~~January 31,~~the end of Fiscal 2018 except for several notable exceptions including Ireland, the UKU.K. and several states where the open periods are one year longer.

The IRS conducted an examination of the Company’s original federal consolidated income tax return for Fiscal 2016. The IRS reported to the Company that no unfavorable adjustment items were noted during this examination. However, the Company consented to an extension of the audit timeline which enabled the IRS to also examine the amendment to the income tax return, which included the research and development credit for the year. In addition, the IRS opened an examination of the Company’s amended consolidated income tax return for Fiscal 2017. In substance, these efforts evolved into simultaneously conducted examinations of the research and development credits claimed in each year.

In January 2021, the IRS issued its final revenue agents report that documents its understanding of the facts, attempts to summarize the Company’s arguments in support of the research and development claims and states its position which disagrees with the Company’s treatment of a substantial amount of the costs that support the Company’s claims for Fiscal 2016 and Fiscal 2017. The Company believes that its arguments are sound and that the report does not present any new facts relating to the issues or make any new arguments that would cause it to make any adjustments to its accounting for the research and development claims as of October 31, 2021. In March 2021, the Company submitted a formal protest of the findings of the IRS examiner and is pursuing its income tax position with the IRS through the established protest and appeals process. The Company expects that the ultimate settlement of the income tax dispute will be resolved on a basis favorable to the Company.

In November 2020, the Company was notified by the IRS that it intends to examine the consolidated income tax return for Fiscal 2018, with an expressed focus on the research and development tax credit claimed therein. By the time the appeals process commences, our protest may dispute the results of the examinations of the tax returns for all three years.

Solar Energy Projects

~~During the nine months ended October 31, 2021, the~~The Company has invested ~~approximately $4.1 million~~ in a limited liability ~~company~~companies that ~~makes~~make equity investments in solar energy projects that are eligible to receive energy tax ~~credits.~~credits, including $4.1 million that was invested during the nine months ended October 31, 2021. The passive ~~investment has~~investments have been accounted for ~~under~~using the equity ~~method and reported within~~method; the balances are included in other assets in our condensed consolidated balance ~~sheet.~~sheets. Each tax credit, when recognized, is recorded as a reduction of the corresponding investment balance with an offsetting reduction in the balance of accrued taxes payable in accordance with the deferral method. Investment tax credits in the approximate amount of $3.3 million were recognized during the nine months ended October 31, 2021. ~~As of October 31, 2021, the Company’s remaining cash investment commitment was approximately $0.9 million.~~

At October 31, ~~2021,~~2022 and January 31, 2022, the ~~corresponding~~investment account balances were $1.2 million and $0.2 million, respectively. These investments are expected to provide positive overall returns over their six-year expected lives.

During the nine months ended October 31, 2022, the investment balance was adjusted to reflect ~~its~~the Company’s share of the ~~loss~~income of the investment ~~entity~~entities in the amount of approximately ~~$0.4~~$1.1 million, which amount has been included as other ~~expense~~income in the Company’s condensed consolidated statement of earnings for the ~~nine months~~corresponding period. The adjustment made in the three-month period ended October 31, ~~2021.~~ 2022 was not material.

The Company has also established deferred taxes related to the difference in the book and tax bases of the investments. ~~This investment is expected to provide a positive overall return over the six-year expected life of the investment.~~

Supplemental Cash Flow Information

The amounts of cash paid for income taxes during the nine months ended October 31, 2022 and 2021 were $6.3 million and ~~2020 were~~ $9.6 million (including ~~$3.3~~the $4.1 million in solar energy investment ~~tax credits) and $3.8 million,~~described above), respectively. ~~During the nine months ended October 31, 2020, the Company received cash refunds of previously paid income taxes from various taxing authorities in the total amount of $0.9 million.~~ The ~~amount~~amounts of income tax refunds received during the nine months ended October 31, 2022 and 2021 ~~was~~were not material.

1816

NOTE 11 – NET INCOME PER SHARE ~~ATTRIBUTABLE TO THE STOCKHOLDERS OF ARGAN~~

Basic and diluted net income per share amounts are computed as follows (shares in thousands except in the ~~notes)~~note):


	Three Months Ended October 31,				Three Months Ended October 31,
	2021		2020		2022		2021

Net income attributable to the stockholders of Argan	$	12,393	$	9,454
Net income					$	7,758	$	12,393

Weighted average number of shares outstanding – basic		15,774		15,680		13,781		15,774
Effect of stock awards ⁽¹⁾		189		153		31		189
Weighted average number of shares outstanding – diluted		15,963		15,833		13,812		15,963

Net income per share attributable to the stockholders of Argan
Net income per share
Basic	$	0.79	$	0.60	$	0.56	$	0.79
Diluted	$	0.78	$	0.60	$	0.56	$	0.78

(1)

For the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, the weighted average numbers of shares determined on a dilutive basis exclude the effects of antidilutive stock options covering an aggregate of ~~579,167~~1,016,834 and ~~506,501~~579,167 shares of common stock, respectively.


	Nine Months Ended October 31,				Nine Months Ended October 31,
	2021		2020		2022		2021

Net income attributable to the stockholders of Argan	$	36,029	$	14,300
Net income					$	19,465	$	36,029

Weighted average number of shares outstanding – basic		15,757		15,659		14,268		15,757
Effect of stock awards ⁽¹⁾		223		136		82		223
Weighted average number of shares outstanding – diluted		15,980		15,795		14,350		15,980

Net income per share attributable to the stockholders of Argan
Net income per share
Basic	$	2.29	$	0.91	$	1.36	$	2.29
Diluted	$	2.25	$	0.91	$	1.36	$	2.25

(1)

For the nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, the weighted average numbers of shares determined on a dilutive basis exclude the effects of antidilutive stock options covering an aggregate of ~~366,500~~978,834 and ~~688,000~~366,500 shares of common stock, respectively.

NOTE 12 – CASH DIVIDENDS AND COMMON STOCK REPURCHASES

On September ~~9, 2021, the Company’s~~8, 2022, Argan’s board of directors declared a regular quarterly cash dividend in the amount of $0.25 per share of common stock, which was paid on October ~~29, 2021~~31, 2022 to stockholders of record at the close of business on October 21, ~~2021. On June 24, 2021, the Company’s board of directors declared a~~2022. The Company also made regular quarterly cash dividend payments in the ~~amount~~amounts of $0.25 per share of common stock ~~which was~~ ~~paid~~ onin April 2022 and July 30, 2021 to stockholders of record at the close of business on July 22, 2021. On April 14, 2021, the Company’s board of directors declared a regular quarterly cash dividend in the amount of $0.25 per share of common stock, which was ~~paid~~ ~~on April 30, 2021.~~2022. During the nine months ended October 31, ~~2020,~~2021, the board of directors declared three regular quarterly cash dividends, each in the amount of $0.25 per share of common stock, which were paid to stockholders on in October 2021, July 2021 and April 2021, respectively.

Pursuant to authorizations provided by Argan’s board of directors (the “Share Repurchase Plan”), the Company repurchased shares of its common stock during the three and nine months ended October 31, ~~2020, July 31, 2020~~2022. During these periods, the Company repurchased 308,423 shares and ~~April 30, 2020, respectively. The Company also paid a special cash dividend in the amount of $1.00 per share~~1,721,015 shares of common stock, most on ~~July 31, 2020.~~

the open market, for aggregate prices of approximately $10.1 million, or $32.69 per share, and $63.3 million, or $36.75 per share, respectively.

1917

NOTE 13 – CUSTOMER CONCENTRATIONS

The majority of the Company’s consolidated revenues relate to performance by the power industry services segment which provided ~~80%~~77% and ~~86%~~80% of consolidated revenues for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~77%~~76% and ~~83%~~77% of consolidated revenues for the nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The industrial services segment represented ~~17%~~20% and ~~12%~~17% of consolidated revenues for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and 20% ~~and 15%~~ of consolidated revenues for both the nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

The Company’s most significant customer relationships for the three months ended October 31, 2022 included four power industry service customers, which accounted for 33%, 12%, 12% and 12% of consolidated revenues, respectively. The Company’s most significant customer relationship for the three months ended October 31, 2021 included 1one power industry service customer, which accounted for 56% of consolidated revenues. The Company’s most significant customer relationship for the ~~three~~nine months ended October 31, ~~2020~~2022 included 1one power industry service customer, which accounted for ~~70%~~42% of consolidated revenues. The Company’s most significant customer relationships for the nine months ended October 31, 2021 included 1one power industry service customer and 1one industrial services customer, which accounted for 61% and 11% of consolidated revenues, respectively. ~~The Company’s most significant customer relationship for the nine months ended October 31, 2020 included 1 power industry service customer, which accounted for 69% of consolidated revenues.~~

The accounts receivable balances from 2two major customers represented ~~25%~~35% and ~~21%~~13% of the corresponding consolidated balance as of October 31, ~~2021.~~2022. Accounts receivable balances from 3three major customers represented ~~26%~~22%, 11% and 11% of the corresponding consolidated balance as of January 31, 2021. The contract asset balances from 2 major customers represented 30% and 12% of the corresponding consolidated balance as of October 31, 2021. Contract asset balances from 2 major customers represented 64%15% and 12% of the corresponding consolidated balance as of January 31, ~~2021.~~2022. The contract asset balance related to one major customer represented 19% of the corresponding consolidated balance as of October 31, 2022. Contract asset balances from two major customers represented 31% and 13% of the corresponding consolidated balance as of January 31, 2022.

NOTE 14 – SEGMENT REPORTING

Segments represent components of an enterprise for which discrete financial information is available that is evaluated regularly by the Company’s chief executive officer, who is the chief operating decision maker, in determining how to allocate resources and in assessing performance. The Company’s reportable segments recognize revenues and incur expenses, are organized in separate business units with different management teams, customers, talents and services, and may include more than 1one operating segment. Intersegment revenues and the related cost of revenues are netted against the corresponding amounts of the segment receiving the intersegment services. For the three and nine months ended October 31, 2022, intersegment revenues were $0.3 million and $0.6 million, respectively. For the nine months ended October 31, 2021, intersegment revenues totaled approximately $2.7 million; such revenues for the three months ended October 31, 2021 were not material. For the three and nine months ended October 31, 2020, intersegment revenues totaled approximately $0.5 million and $1.4 million, respectively. Intersegment revenues for the aforementioned periods primarily related to services provided by the industrial fabrication and field services segment to the power industry services segment and were based on prices negotiated by the parties.

2018

Summarized below are certain operating results and financial position data of the Company’s reportable business segments for the three and nine months ended October 31, ~~2021~~2022 and ~~2020.~~2021. The “Other” column in each summary includes the Company’s corporate expenses.


Three Months Ended	Power		Industrial		Telecom						Power		Industrial		Telecom
October 31, 2021	Services		Services		Services		Other		Totals
October 31, 2022											Services		Services		Services		Other		Totals
Revenues	$	99,560	$	21,402	$	3,489	$	—	$	124,451	$	90,682	$	22,137	$	5,056	$	—	$	117,875
Cost of revenues		76,517		18,703		3,096		—		98,316		72,725		18,737		4,205		—		95,667
Gross profit		23,043		2,699		393		—		26,135		17,957		3,400		851		—		22,208
Selling, general and administrative expenses		6,770		2,158		558		2,104		11,590		6,745		1,823		796		3,303		12,667
Income (loss) from operations		16,273		541		(165)		(2,104)		14,545		11,212		1,577		55		(3,303)		9,541
Other income, net		1,116		—		—		1		1,117		592		—		—		176		768
Income (loss) before income taxes	$	17,389	$	541	$	(165)	$	(2,103)		15,662	$	11,804	$	1,577	$	55	$	(3,127)		10,309
Income tax expense										(3,269)										(2,551)
Net income									$	12,393									$	7,758

Amortization of intangibles	$	61	$	166	$	—	$	—	$	227	$	—	$	166	$	46	$	—	$	212
Depreciation		145		564		109		1		819		142		501		96		1		740
Property, plant and equipment additions		36		60		223		2		321		774		928		238		4		1,944

Current assets	$	374,370	$	24,029	$	3,329	$	157,991	$	559,719	$	237,575	$	31,355	$	4,076	$	91,959	$	364,965
Current liabilities		247,693		9,015		1,696		641		259,045		110,383		21,560		1,420		1,179		134,542
Goodwill		18,476		9,467		—		—		27,943		18,476		9,467		90		—		28,033
Total assets		406,261		42,833		5,765		158,294		613,153		261,994		48,766		7,434		92,709		410,903

Three Months Ended

Power

Industrial

Telecom

October 31, 2020

Services

Services

Services

Other

Totals
Revenues

$
109,712

$
15,730

$
1,889

$
—

$
127,331
Cost of revenues

91,263

14,218

1,507

—

106,988
Gross profit

18,449

1,512

382

—

20,343
Selling, general and administrative expenses

5,096

1,828

489

1,985

9,398
Income (loss) from operations

13,353

(316)

(107)

(1,985)

10,945
Other income, net

172

—

—

3

175
Income (loss) before income taxes

$
13,525

$
(316)

$
(107)

$
(1,982)

11,120
Income tax expense

(1,666)
Net income

$
9,454

Amortization of intangibles

$
62

$
164

$
—

$
—

$
226
Depreciation

178

654

106

2

940
Property, plant and equipment additions

164

34

81

—

279

Current assets

$
392,954

$
25,404

$
1,704

$
118,758

$
538,820
Current liabilities

245,808

13,762

709

751

261,030
Goodwill

18,476

9,467

—

—

27,943
Total assets

425,909

47,356

3,190

119,045

595,500


Three Months Ended	Power		Industrial		Telecom
October 31, 2021	Services		Services		Services		Other		Totals
Revenues	$	99,560	$	21,402	$	3,489	$	—	$	124,451
Cost of revenues		76,517		18,703		3,096		—		98,316
Gross profit		23,043		2,699		393		—		26,135
Selling, general and administrative expenses		6,770		2,158		558		2,104		11,590
Income (loss) from operations		16,273		541		(165)		(2,104)		14,545
Other income, net		1,116		—		—		1		1,117
Income (loss) before income taxes	$	17,389	$	541	$	(165)	$	(2,103)		15,662
Income tax expense										(3,269)
Net income									$	12,393

Amortization of intangibles	$	61	$	166	$	—	$	—	$	227
Depreciation		145		564		109		1		819
Property, plant and equipment additions		36		60		223		2		321

Current assets	$	374,370	$	24,029	$	3,329	$	157,991	$	559,719
Current liabilities		247,693		9,015		1,696		641		259,045
Goodwill		18,476		9,467		—		—		27,943
Total assets		406,261		42,833		5,765		158,294		613,153

2119

Nine Months Ended

Power

Industrial

Telecom

October 31, 2021

Services

Services

Services

Other

Totals
Revenues

$
295,736

$
78,213

$
9,851

$
—

$
383,800
Cost of revenues

233,682

64,519

8,098

—

306,299
Gross profit

62,054

13,694

1,753

—

77,501
Selling, general and administrative expenses

17,976

6,017

1,528

6,292

31,813
Income (loss) from operations

44,078

7,677

225

(6,292)

45,688
Other income, net

1,564

—

—

5

1,569
Income (loss) before income taxes

$
45,642

$
7,677

$
225

$
(6,287)

47,257
Income tax expense

(11,228)
Net income

$
36,029

Amortization of intangibles

$
183

$
497

$
—

$
—

$
680
Depreciation

464

1,764

329

3

2,560
Property, plant and equipment additions

464

76

578

5

1,123

Nine Months Ended

Power

Industrial

Telecom

October 31, 2020

Services

Services

Services

Other

Totals
Revenues

$
227,363

$
42,163

$
5,445

$
—

$
274,971
Cost of revenues

192,583

38,096

4,310

—

234,989
Gross profit

34,780

4,067

1,135

—

39,982
Selling, general and administrative expenses

15,892

5,664

1,447

5,824

28,827
Income (loss) from operations

18,888

(1,597)

(312)

(5,824)

11,155
Other income, net

1,634

—

—

80

1,714
Income (loss) before income taxes

$
20,522

$
(1,597)

$
(312)

$
(5,744)

12,869
Income tax benefit

��

1,391
Net income

$
14,260

Amortization of intangibles

$
182

$
495

$
—

$
—

$
677
Depreciation

522

1,967

305

4

2,798
Property, plant and equipment additions

857

338

217

—

1,412


Nine Months Ended	Power		Industrial		Telecom
October 31, 2022	Services		Services		Services		Other		Totals
Revenues	$	255,958	$	67,660	$	12,644	$	—	$	336,262
Cost of revenues		202,985		56,968		9,976		—		269,929
Gross profit		52,973		10,692		2,668		—		66,333
Selling, general and administrative expenses		18,418		5,267		2,369		8,172		34,226
Income (loss) from operations		34,555		5,425		299		(8,172)		32,107
Other income, net		1,613		—		1		254		1,868
Income (loss) before income taxes	$	36,168	$	5,425	$	300	$	(7,918)		33,975
Income tax expense										(14,510)
Net income									$	19,465
							��
Amortization of intangibles	$	—	$	497	$	114	$	—	$	611
Depreciation		422		1,553		318		3		2,296
Property, plant and equipment additions		868		1,415		295		4		2,582

For the nine months ended October 31, 2022, property, plant and equipment additions primarily consisted of building improvements made by TRC to its fabrication facility in connection with a plant consolidation and the purchase of office space by APC for its headquarters staff in Limerick, Ireland.


Nine Months Ended	Power		Industrial		Telecom
October 31, 2021	Services		Services		Services		Other		Totals
Revenues	$	295,736	$	78,213	$	9,851	$	—	$	383,800
Cost of revenues		233,682		64,519		8,098		—		306,299
Gross profit		62,054		13,694		1,753		—		77,501
Selling, general and administrative expenses		17,976		6,017		1,528		6,292		31,813
Income (loss) from operations		44,078		7,677		225		(6,292)		45,688
Other income, net		1,564		—		—		5		1,569
Income (loss) before income taxes	$	45,642	$	7,677	$	225	$	(6,287)		47,257
Income tax expense										(11,228)
Net income									$	36,029

Amortization of intangibles	$	183	$	497	$	—	$	—	$	680
Depreciation		464		1,764		329		3		2,560
Property, plant and equipment additions		464		76		578		5		1,123

NOTE 15 — SUBSEQUENT EVENT

On November 3, 2022, GPS received full notice to proceed with EPC activities under a contract for a 950 MW natural gas-fired power plant that it will build in Lordstown, Ohio. Construction of this state-of-the-art combined cycle facility has begun with completion scheduled to occur in calendar 2026.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of October 31, ~~2021,~~2022, and the results of their operations for the three and nine month periods ended October 31, ~~2021~~2022 and ~~2020,~~2021, 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 ~~2021~~2022 that was filed with the SEC on April ~~14, 2021~~13, 2022 (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, ~~including those relating to the potential effects of the COVID-19 pandemic on our business,~~ 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

~~Argan~~The Company is primarily a ~~holding company~~construction firm that conducts operations through its wholly-owned subsidiaries, GPS, APC, SMC and TRC. Through GPS and APC, we provide a full range of engineering, procurement, construction, commissioning, operations management, maintenance, development, technical and consulting services to the power generation market, including the renewable energy sector, for a wide range of customers, including independent power project owners, public utilities, ~~equipment suppliers and~~ global energy plant construction ~~firms.~~firms and other commercial firms with significant power requirements. GPS and APC represent our power industry services reportable segment. Through TRC, the industrial fabrication and field services reportable segment provides on-site services that support maintenance turnarounds, shutdowns and emergency mobilizations for industrial ~~plants~~operations primarily located in the ~~southeastern~~southeast region of the USU.S. and that are based on its expertise in producing, delivering and installing fabricated steel components such as piping systems and pressure vessels. Through 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~~Mid-Atlantic region of the ~~US.~~U.S.

We ~~intend to~~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. We expect that significant~~opportunity and/or needs of our customers. Significant acquired companies ~~will be maintained in separate subsidiaries that~~ will be operated in a manner that we believe will best ~~provides cash flows for the Company~~provide long-term and enduring value for our stockholders.

Overview

Operating Results

Consolidated revenues for the three months ended October 31, ~~2021~~2022 were ~~$124.5~~$117.9 million, which represented a ~~slight~~ decrease of ~~$2.8~~$6.6 million, or ~~2.3%~~5.3%, from consolidated revenues of ~~$127.3~~$124.5 million reported for the three months ended October 31, ~~2020.~~2021.

The revenues of the power industry services segment decreased by ~~$10.1~~$8.9 million to ~~$99.6~~$90.7 million for the three months ended October 31, ~~2021,~~2022, from ~~$109.7~~$99.6 million reported for the three months ended October 31, ~~2020.~~2021. The revenues of this reportable segment of our business represented 76.9% and 80.0% of corresponding consolidated revenues for the three months ended October 31, ~~2021. For the three months ended October 31, 2020, the percentage share of consolidated revenues represented by this reportable segment was 86.2%.~~2022 and 2021, respectively. The industrial services business reported revenues of ~~$21.4~~$22.1 million for the three months ended October 31, ~~2021.~~2022. This amount represented an increase of ~~$5.7~~$0.7 million, or ~~36.1%~~3.4%, from revenues of ~~$15.7~~$21.4 million reported by TRC for the three months ended October 31, ~~2020.~~2021. Revenues provided by this reportable business segment represented ~~17.2%~~18.8% and ~~12.4%~~17.2% of corresponding consolidated revenues for the three months ended October 31, 2022 and 2021, ~~and 2020,~~ respectively.

Consolidated gross profit for the three-month period ended October 31, ~~2021~~2022 was ~~$26.1~~$22.2 million, or ~~21.0%~~approximately 18.8% of the corresponding consolidated revenues, which reflected ~~primarily~~ favorable contributions from ~~the power industry services and industrial services~~all three reportable business segments. For the three-month period ended October 31, ~~2020,~~2021, the consolidated gross profit was ~~$20.3~~$26.1 million, which represented approximately ~~16.0%~~21.0% of the corresponding amount of consolidated revenues.

Selling, general and administrative expenses for the three months ended October 31, 2022 and 2021 were $12.7 million and ~~2020 were~~ $11.6 million, respectively.

Consolidated revenues for the nine months ended October 31, 2022 were $336.3 million, which represented a decrease of $47.5 million, or ~~9.3%~~12.4%, from consolidated revenues of $383.8 million reported for the nine months ended October 31, 2021.

The revenues of power industry services decreased by $39.8 million to $256.0 million for the nine months ended October 31, 2022, from $295.7 million reported for the nine months ended October 31, 2021. The revenues of this reportable segment of our business represented 76.1% and 77.1% of corresponding consolidated revenues for the nine months ended October 31, 2022 and ~~$9.4~~2021, respectively. The industrial services business reported revenues of $67.7 million for the nine months ended October 31, 2022. This amount represented a decrease of $10.6 million, or ~~7.4%~~13.5%, from revenues of $78.2 million reported by TRC for the nine months ended October 31, 2021. Revenues provided by this reportable business segment represented 20.1% and 20.4% of corresponding consolidated revenues ~~respectively.~~

~~Due primarily to the increase in consolidated pre-tax book income to $15.7 million~~ for the ~~three~~nine months ended October 31, 2022 and 2021, ~~from $11.1 million~~respectively.

Consolidated gross profit for the nine-month period ended October 31, 2022 was $66.3 million, or 19.7% of the corresponding consolidated revenues, which also reflected favorable contributions from all three reportable businesssegments. For the nine-month period ended October 31, 2021, the consolidated gross profit was $77.5 million, which represented approximately 20.2% of the corresponding amount of consolidated revenues.

Selling, general and administrative expenses for the nine months ended October 31, ~~2020, we reported income tax expense in the amount of $3.3~~2022 and 2021 were $34.2 million ~~for the current period. Income tax expense for the three months ended October 31, 2020 was $1.7 million.~~and $31.8 million, respectively.

For the three months ended October 31, 2022, income tax expense was $2.6 million which represented an effective income tax rate of 24.7% for the period. For the three months ended October 31, 2021, income tax expense was $3.3 million which represented an effective income tax rate of 20.9% for the period.

Due substantially to the unfavorable income tax expense adjustment recorded during the nine months ended October 31, 2022 in the approximate amount of $6.2 million and related to the settlement of claims with the IRS as discussed in Note 10 to our condensed consolidated financial statements, income tax expense increased to $14.5 million for the period from $11.2 million for the nine months ended October 31, 2021. Excluding the effect of the IRS settlement adjustment, our effective income tax rate for the nine months ended October 31, 2022 was 24.5%. For the nine months ended October 31, 2021, our ~~favorable~~effective income tax rate was 23.8%.

For the three months ended October 31, 2022, our overall operating profit performance resulted in net income ~~attributable to our stockholders~~ in the amount of ~~$12.4~~$7.8 million, or ~~$0.78~~$0.56 per diluted share. For the comparable period last year, we reported net income ~~attributable to our stockholders~~ in the amount of ~~$9.5~~$12.4 million, or ~~$0.60~~$0.78 per dilutive share.

~~Consolidated revenues for~~ For the ~~nine-month period~~nine months ended October 31, 2022 and 2021, ~~were $383.8 million; this amount represented a 39.6% improvement from the amount of revenues~~net income was $19.5 million, or $1.36 per diluted share, and $36.0 million, or $2.25 per diluted share, respectively. The unfavorable income tax expense adjustment identified above reduced net income per diluted share for the nine months ended October 31, ~~2020. The revenues~~2022 by $0.43.

Project Backlog

At October 31, 2022, our consolidated project backlog amount of $0.8 billion substantially consisted of the projects of the power industry services segment increased by $68.3 million to $295.7 million for the nine months ended October 31, 2021, from $227.4 million reported for the nine months ended October 31, 2020. The revenues of the power industry services segment represented 77.1% and 82.7% of consolidated revenues for the nine months ended October 31, 2021 and 2020, respectively. The industrial services business reported revenues of $78.2 million for the nine months ended October 31, 2021. This amount represented an increase of $36.0 million, or 85.5%, from revenues of $42.2 million reported by this business for the nine months ended October 31, 2020. Revenues provided by this reportable business segment represented 20.4% and 15.3% of corresponding consolidated revenues for the nine months ended October 31, 2021 and 2020, respectively.

Consolidated gross profit for the nine months ended October 31, 2021 was $77.5 million, or 20.2% of the corresponding consolidated revenues, which reflected primarily the favorable impact of higher consolidated revenues. For the nine months ended October 31, 2020, our consolidated gross profit was $40.0 million, or 14.5% of corresponding consolidated revenues for the period.

Selling, general and administrative expenses were $31.8 million and $28.8 million for the nine months ended October 31, 2021 and 2020, respectively, or 8.3% and 10.5% of revenues for the corresponding periods, respectively.

Due primarily to the consolidated pre-tax book income reported for the nine months ended October 31, 2021 in the amount of $47.3 million, we reported income tax expense in the amount of $11.2 million for the period. For the nine months ended October 31, 2020, we recorded an income tax benefit in the amount of $1.4 million which reflected primarily a net operating loss carryback benefit of $4.4 million, most of which was recorded in the first quarter last year.

For the nine months ended October 31, 2021, our improved overall operating performance resulted in net income attributable to our stockholders in the amount of $36.0 million, or $2.25 per diluted share. For the comparable period last year, we reported net income attributable to our stockholders in the amount of $14.3 million, or $0.91 per dilutive share.

The primary drivers of our strong financial performance for the three and nine months ended October 31, 2021 were the revenues and gross margin contributions associated with the construction projects of GPS. These projects represented the major portion of our business for the periods.

We believe that all of our businesses have been adversely impacted, to some degree, by difficulties presented by the COVID-19 pandemic, especially last year when the outbreak commenced. For example, the results for APC were hurt by the slow resumption of postponed Irish works projects and the suspension and restart of construction activities on a certain major project. The challenges of managing the continuing activities of the Guernsey Power Station project during the periods of various health and safety restrictions have resulted in modifications to construction plans and schedules. In addition, our consolidated revenues for the nine months ended October 31, 2020 in particular suffered from the effects of project delays by customers of both TRC and SMC attributable to the restrictive work environments caused by the pandemic.

We believe that all of our operating companies have managed the challenges presented by this ongoing pandemic with relative success so far. A significant amount of effort has been spent by senior and project management to ensure the safety of our employees during the COVID-19 pandemic while we continued to satisfy our customer obligations. While our pro-

active efforts varied depending on the particular job or office location, and other factors including the severity of the outbreak, we implemented a number of different safety measures, including COVID-19 testing onsite at a major job site, remote work, staggered shifts in various offices, contract tracing and quarantines. Meanwhile, our commitment to the maintenance of our operations and support teams, and the dedication to performance that our employees maintained during the crisis, positioned us well to satisfy the performance requirements of our customers as general business conditions improved during the nine months ended October 31, 2021. However, the recent resurgence of new COVID-19 virus variants represents uncertainty regarding our realizing expected financial results for the remainder of the year if the new outbreak prevents our work crews from completing project work as scheduled.

~~Engineering, Procurement and Construction Service Contracts~~

While the positive financial results for the three and nine months ended October 31, 2021 have been encouraging to us, third quarter events that may affect the level of future business have been mixed.

~~At October 31, 2021, the project backlog for the power industry services~~ reporting ~~segment was approximately $0.8 billion.~~segment. The comparable backlog amount as of January 31, ~~2021~~2022 was ~~also $0.8~~$0.7 billion. 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~~ ~~(project backlog is larger than the value of remaining unsatisfied performance obligations, or RUPO, on active contracts; see Note 2 to the accompanying consolidated financial statements).~~projects.

Typically, we include the total value of EPC services and other major construction contracts in project backlog when we receive a corresponding notice to proceed from the project owner. However, we may include the value of an EPC services contract prior to the receipt of a notice to proceed if we believe that it is probable that the project will commence within a

reasonable timeframe, among other factors. Projects that are awarded to us may remain included in our backlog for extended periods of time as customers experience project delays. However, cancellations or reductions may occur that would reduce project backlog and that could adversely affect our expected future revenues.

~~A meaningful amount~~In May 2019, GPS entered into an EPC services contract to construct a 625 MW power plant in Harrison County, West Virginia. As a limited notice to proceed with certain preliminary activities was received from the owner of this project at the time (a repeat customer), the value of the contract was added to our project backlog. However, meaningful development milestones have not been achieved and management concluded that the value of this power plant should be removed from project backlog ~~amount~~as of October 31, 2022.

On the other hand, in October 2022, GPS added the EPC services contract value of the Trumbull Energy Center, a 950 MW natural gas-fired power plant to be built in Lordstown Ohio, to our project backlog as we had a fully executed EPC service contract and we expected contract activities to commence imminently. As disclosed in Note 15 to the condensed consolidated financial statements included herein, we received the full notice to proceed with the project from the owner, Clean Energy Future-Trumbull, LLC, in November 2022. Gemma has since commenced activities for the project. 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, and contract completion is scheduled for calendar year 2026.

A portion of consolidated project backlog at October 31, ~~2021 was represented by~~2022 relates to the Guernsey Power ~~Station. The ramp-up of activity on~~Station as GPS completes the commissioning process for this project, ~~since August 2019~~the largest single-phase, gas-fired, power plant under construction in the U.S. First fire has ~~favorably impacted our consolidated operating results since then.~~successfully occurred for all three of this plant’s natural gas-fired turbines. Substantial completion of this project is currently ~~scheduled~~expected to occur ~~during the second half of the fiscal year ending January 31,~~early in calendar 2023.

~~Despite our commitment~~We are committed to the construction of state-of-the-art, natural gas-fired power plants, which represents our core business, as important elements of our country’s electricity-generation mix in the ~~future,~~future. In addition, we have been directing certain business development efforts to winning projects for the erection of utility-scale wind farms and solar fields and for the construction of hydrogen-based energy and other ~~renewable energy projects.~~industrial projects in order to diversify the sources of revenues. We have successfully completed ~~these types of~~renewable energy projects in the past and we have renewed efforts to obtain new work in other sectors of the ~~renewable~~ power ~~sector~~market that will complement our natural gas-fired EPC services projects going forward. During Fiscal 2021, GPS began exclusive negotiations with the owners of several significant renewable projects in anticipation of beginning the corresponding EPC services contract activities during the fiscal year ending January 31, 2022 (“Fiscal 2022”) and beyond.

~~Our~~These efforts led to ~~our announcement in May 2021 that GPS entered into~~the award of an EPC services contract ~~with~~to us by CPV Maple Hill Solar, LLC, an affiliate of Competitive Power Ventures, Inc., to construct the Maple Hill Solar facility, which we believe will be among the largest solar-powered energy plants in Pennsylvania. Project ~~activities were begun by GPS immediately. Project~~ completion is currently scheduled to occur during the second half of ~~calendar year 2022.~~Fiscal 2024. The unique Maple Hill Solar project, which is located in Cambria County, ~~will be~~is being constructed using over 235,000 photovoltaic modules to generate approximately 100 MW of electrical power.

Together, the currently active projects of GPS, the Guernsey Power Station, the Maple Hill Solar facility and the Trumbull Energy Center, represent nearly 3.0 gigawatts of potential electrical power and require the significant engagement of the technical, project support and project management teams of GPS while they assist APC with certain current projects and business development efforts.

The business development efforts conducted by our APC ~~subsidiary~~operations have resulted in ana significant increase in the project backlog of this business, ~~from $13.8 million at January 31, 2021~~which amounted to ~~$124.2~~approximately $154 million as of October 31, ~~2021. The most~~2022. A significant award occurred in October 2021 as APC entered into an engineering and construction services contract with EPUKI London, ~~UK,~~U.K., to construct a 2 x 330 MW natural gas-fired power plant in Carrickfergus that is near Belfast, Northern Ireland, in a structure that ~~will replace~~was initially designed to enclose coal-fired ~~units at~~units. Our project, referred to as the ~~site. The power trains will be provided by Siemens Energy which will utilize SGT5-4000F gas turbines. The facility~~“Kilroot” project, is being developed by EPNI Energy Limited. Full project activities are underway; the overall completion of this project is expected to occur in the latter half of Fiscal 2024.

In May 2022, APC entered into engineering and construction services contracts with Ireland’s Electricity Supply Board (“ESB”) to construct three 65 MW aero-derivative gas turbine flexible generation power plants in and around the city of Dublin, Ireland. Two of the power plants, the Poolbeg and Ringsend FlexGen Power Plants, will be located on the Poolbeg Peninsula, and the Corduff FlexGen Power Plant will be built in Goddamendy. All three projects cleared the applicable capacity auction earlier this year and are expected to operate intermittently during peak periods of electricity demand and

as back-up supply options when renewable electricity generation is limited. A full notice to proceed ~~was~~has been received and project activities have commenced. The ~~overall project~~ completion ~~date~~of each power plant is expected into occur near the ~~latter half~~end of ~~calendar 2023.~~Fiscal 2024.

~~As discussed at previous reporting dates, GPS~~The project backlog of TRC has been ~~awarded certain EPC~~increased by over 100% since January 31, 2022 to approximately $97 million as of October 31, 2022, reflecting a business development emphasis on the award of larger industrial field service projects. The recent emphasis on field services ~~contracts where~~opportunities influenced the ~~commencement of~~strategic decision to consolidate the ~~projects has been delayed.~~pipe and vessel fabrication facilities to reduce fixed costs, streamline operations and better support a growing and scalable business model.

~~In January 2020, GPS entered into an EPC services contract with Harrison Power, LLC (“Harrison Power”)~~We continue to ~~construct a 1,085 MW~~pursue natural gas-fired power plant, renewable energy plant and industrial construction opportunities in the ~~Village of Cadiz, Harrison County, Ohio. The project~~U.S., Ireland and the U.K. However, it is ~~being developed by EmberClear, the parent company of Harrison Power, and Advanced Power Services (NA) Inc. We anticipate adding the value of this new contract~~important to ~~project backlog closer to its financial close and expected start date. Previously, we anticipated~~note that the start of ~~construction activities for this project would occur before the end of Fiscal 2022. However, delays continue and we cannot predict with certainty when the project will commence. As with most~~new projects ~~the start dates for construction are generally~~is primarily controlled by ~~the~~ project ~~owners.~~owners and that delays may occur that are beyond our control.

On March 12, 2020, we announced that GPS had entered into an EPC services contract with NTE Connecticut, LLC to construct the Killingly Energy Center, a 650 MW natural gas-fired power plant, in Killingly, Connecticut. The facility is being developed by NTE Energy, LLC (“NTE”). However, in November 2021, the New England electricity grid operator requested that the Federal Energy Regulatory Commission (“FERC”) grant it permission to terminate its capacity supply contract with NTE because it does not believe that NTE will meet its critical path schedule milestones as required. Such termination would jeopardize the future of this project.

As announced in Fiscal 2019, GPS entered into an EPC services contract to construct the Chickahominy Power Station, a 1,740 MW natural gas-fired power plant, in Charles City County, Virginia. Even though we have been providing financial and technical support to the project development effort through a consolidated VIE and significant project development milestones have been achieved, we have not included the value of this contract in our project backlog. Due to several factors that have interrupted the pace of the development of this project, including additional costs and time being required to secure the fuel-supply for the plant and to obtain the necessary equity financing, we currently cannot predict when construction will commence, if at all.

In May 2019, GPS entered into an EPC services contract to construct a 625 MW power plant in Harrison County, West Virginia. Caithness is partnered with ESC Harrison County Power, LLC to develop this project. As a limited notice to proceed with certain preliminary activities was received from the owner of this project at the time, the value of the contract was added to our project backlog. However, meaningful project development activities for the facility appear to have been discontinued, including the lapse of the project owner’s option to purchase the land for the plant. If development milestones are not achieved over the next several quarters, our evaluation will most likely result in the removal of the value of this power plant from project backlog.

We have maintained that the delays in new business awards to GPS and the project construction starts of certain previously awarded projects relate to a variety of factors, especially in the northeastern and mid-Atlantic regions of the US. Currently, we believe that the ability of the owners of fully developed gas-fired power plant projects to close on equity and permanent debt financing was challenged by uncertainty in the capital markets caused by multiple factors including delayed capacity auctions and mounting public and political opposition to fossil-fuel energy projects. Market Outlook

The ~~current year announcement by~~overall growth of our power business has been substantially based on the ~~PJM~~number of a new capacity auction schedule may remove some amount of uncertainty for project developers in forecasting future streams of revenues. In fact, the results of the first capacity auction conducted by PJM in over 3 years were announced on May 2, 2021. Even though pricing was significantly lower than in prior years, over 5.6 GW of new combined cycle gas-fired power plants ~~cleared~~built by us, as many coal-fired plants have been shut down. In 2010, coal-fired power plants accounted for about 45% of net electricity generation. For 2021, coal fueled approximately 22% of net electricity generation. In December 2021, it was reported that the ~~auction,~~average age of the active plants in the coal-fired fleet approximates 45 years old; 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 38% of the electricity generated by utility-scale power plants in the U.S. in 2021, representing ~~over 75%~~an increase of ~~all new capacity units. The remaining new capacity was comprised~~60% from the amount of ~~solar and wind powered energy plants. Despite these results, new~~electrical power generated by natural gas-fired power plants in 2010, which provided approximately 24% of net electricity generation for 2010. The average age of utility-scale natural gas-fired power plants in the U.S. is approximately 22 years old.

In the reference case of its Annual Energy Outlook 2022, the Energy Information Administration (“EIA”) projects average increases to utility-scale electricity generation in the U.S. of slightly less than 1% per year from 2022 through 2050. The shift from coal to natural gas as a power plant ~~EPC~~energy source in the U.S. is expected to continue as the EIA projects ~~may continue to be delayed until the visibility regarding future capacity revenue streams is further restored with the results~~that coal-fired generation will decline by 45% from 2022 through 2050, and will represent only 11% of the ~~next capacity auction for~~net electricity generation mix by the ~~PJM region, that has been rescheduled to January 25, 2022.~~

~~Other headwinds for future~~end of this period. The net electricity generation from natural gas-fired power plants is projected to increase by 17% in the U.S. by 2050, and will represent approximately 34% of the net electricity generation mix by 2050.

Undoubtedly, the long-term historic decline in the use of coal as a power source in the U.S. was caused, to a significant extent, by the plentiful supply of domestic and generally inexpensive natural gas which made it the fuel of choice for power plant ~~developments remain including an~~developers over this period. The pace of the historic increase in the ~~amount of power~~preference for natural gas as an electricity generating ~~capacity provided~~fuel source also was energized, in part, by ~~renewable energy assets, improvements and decreasing prices in renewable energy storage solutions including battery resources, increased~~ environmental activism and restrictive regulations targeting coal-fired power plants. Now, the ~~results of the 2020 presidential election in the US.~~environmentalist opposition against coal-fired power generation has expanded meaningfully to target all fossil fuel energy projects, including both power plants and pipelines, and has evolved into powerful support for renewable energy sources.

Protests against fossil-fuel related energy projects continue to garner media attention and stir public skepticism about new projects ~~resulting~~which have resulted in delays due to onsite protest demonstrations, indecision by local officials and lawsuits. In the New England and mid-Atlantic regions of the US, power plant operators are challenged by the requirements of the Regional Greenhouse Gas Initiative, or “RGGI,” which is a cooperative effort by states in these regions to cap and reduce power sector carbon dioxide emissions. In addition, variousVarious 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. These aspirational goals may increase the risk of a new power plant becoming a stranded asset long before the end of its otherwise useful economic life, which is a risk that potential equity capital providers may be unwilling to take. The difficulty in obtaining project equity financing and the other factors identified above, may be adversely impacting the planning and initial phases for the construction of new natural gas-fired power ~~plants which continue~~plants. Additionally, lenders, who have become more wary of funding oil-related ventures as environmental, social and governance ideas catch on in financial circles, may be generally unwilling to ~~be deferred by project owners.~~provide capital for energy projects to increase the domestic production and transmission of oil and natural gas.

~~Perhaps the most~~We believe that significant uncertainty relates to the policies of the current U.S. Presidential administration. President Biden ~~who is proposing~~proposes to make the electricity production in the USU.S. carbon free by 2035 and to put the country on the path to achieve net zero carbon emissions by 2050. ~~Mr. Biden caused~~These policy stances continued during the ~~US to re-join the Paris Climate Agreement and he has~~ cancelled the permit allowing the Keystone XL Pipeline to cross the border from Canada into the US. In addition, Mr. Biden ordered a pause on the US government entering into new oil and natural gas leases on public lands or offshore waters to the extent possible, the launchinvasion of ~~a rigorous review of all existing leasing and permitting practices related to fossil fuel development on public lands and waters,~~Ukraine and the ~~identification of steps that can be taken~~current year rise in oil prices as the administration made appeals to ~~double renewable energy~~other countries to increase oil production ~~from offshore wind~~while domestic production is challenged by ~~2030.~~

~~Market Outlook~~

The overall growth of our power business has been based substantially on the number of combined cycle gas-fired power plants built by us, as many coal-fired plants have been shut down. In 2010, coal-fired power plants accounted for about 45% of total electricity generation. By 2020, coal accounted for less than 20% of total electricity generation. On the other hand, natural-gas fired power plants provided approximately 39% of the electricity generated by utility-scale power plants in the US in 2020, representing an increase of 64% from the amount of electrical power generated by natural gas-fired power plants in 2010, which provided approximately 24% of net electricity generation for 2010. In the reference case of its ~~Annual Energy Outlook 2021~~, the Energy Information Administration (“EIA”) projects average increases to utility-scale electricity generation in the US of slightly less than 1% per year from 2021 through 2050. It projects that coal-fired generation will continue to decline through 2050,supply chain and will represent only 11% of the electricity generation mix by 2050. The projection for natural gas-fired plants is that they will supply 36% of the larger net electricity generation amount in the US for 2050. Undoubtedly, the long-term historic decline in the use of coal as a power source in the US has been caused, to a significant extent, by the plentiful supply of domestic and generally inexpensive natural gas which made it the fuel of choice for power plant developers over this period.

However, the share of electricity generation provided by natural gas is particularly reactive in the short term to changing natural gas prices. The EIA has explained that natural gas prices have risen recently primarily because of growth in liquified natural gas exports while the production of natural gas has not kept the same pace. The increased natural gas prices in the US prompted certain firms controlling electricity generation facilities to switch fuel sources from gas to coal. The EIA reports that coal-fired electrical power generation increased by nearly 27% in the US during the first eight months of calendar year 2021 compared with the same period in 2020 and accounted for 23% of total generation during the period compared with 19% for the same period in 2020. Natural gas-fired power generation declined by 5% in the US during the first eight months of calendar 2021 and accounted for 38% of total utility-scale net electricity generation during the first eight months of 2021; down from a 41% share during the same period in calendar 2020.

Depleted supplies of natural gas may have dangerous consequences. The North American Electric Reliability Corp. (NERC) recently warned that much of the central US, from the Great Lakes region to southern Texas, may face critical power shortages during extreme weather conditions this winter as natural gas supply disruptions and low hydropower conditions could also imperil power reliability in New Englandlabor issues and the ~~western US.~~

~~Average natural gas spot prices for all~~maintenance of calendar 2021 are expected to remain high for the remainder of calendar 2021, then generally decline through 2022. Nonetheless, a long-term rise in natural gas prices and the resulting reduction in the demand for natural gas-fired electricity generation, could have adverse effects on the ability of independent power producers to obtain construction and permanent financing for new natural gas-fired power plants. restrictive regulations. Meanwhile,

2724

~~The pace~~delays continue for the construction of pipelines needed to transport natural gas to liquid natural gas export facilities for shipment to Western Europe.

In August 2022, President Biden signed the Inflation Reduction Act, a climate and healthcare bill that imposes new taxes on corporations with net profits for financial reporting in excess of $1.0 billion, spends billions over a decade on new workers and technology at the IRS, and funds hundreds of billions in tax subsidies intended to combat climate change among other measures. According to certain commentary, the legislation will cause investment in technologies needed for leaner production and use of fuel types, including hydrogen, nuclear, renewables and fossil fuels. However, it appears that receipt of the ~~ten-year increase in~~tax subsidies will be conditioned on the ~~preference~~extent that taxpayers “buy American” and/or pay prevailing wages, among other requirements. Existing supply chains may lack the capacity to meet the demand that the incentives are intended to create. Therefore, the subsidies may not provide the intended economic incentives to renewable and other energy project owners. It is not clear that the legislation, for ~~natural gas as an electricity generating fuel source was energized by environmental activism~~which the rules and ~~restrictive~~ regulations ~~targeting coal-fired~~have not yet been finalized, will provide assistance to current and future project owners of fossil-fuel power ~~plants. Now,~~projects.

Accordingly, the environmentalist opposition against coal-fired power generation has expanded meaningfully and effectively to target all fossil fuel energy projects, including power plants and pipelines, and has evolved into powerful support for renewable energy sources.

~~The share~~net amount of electricity generation in the USU.S. provided by utility-scale wind and solar photovoltaic facilities continues to ~~rise meaningfully.~~rise. Over the last two years, the net generation provided by these sources has increased by almost 35%. Together, such power facilities provided approximately ~~8.8%~~9%, 11% and ~~10.6%~~12% of the ~~total~~net amount of electricity generated by utility-scale power facilities in ~~calendar~~ 2019, 2020 and ~~calendar 2020,~~2021, respectively. In EIA’s ~~2021~~2022 reference case, net electricity generation from all renewable power sources is expected to increase by more than ~~175%, representing~~161% and represent over 42% of such generation by 2050. Impetus for this growth is provided by both public concerns about climate change and ~~favorable economic factors.~~

U.S. government subsidies. Environmental activism has resulted in the passage of laws and the establishment of regulations that discourage new fossil-fuel burning power plants and provide income tax advantages that promote the growth of wind and solar power. Declines in the amount of renewable power plant component and power storage costs and an increase in the scale of energy storage capacity (i.e., battery ~~farms)~~farms and other energy storage technologies) have also occurred. ~~Should~~

Over the ~~pace of development for renewable energy facilities, including~~next few years, EIA projects that new wind and photovoltaic solar capacity will continue to be added to the utility-scale power fleet in the U.S. at a brisk pace substantially attributable to declining equipment costs and the availability of valuable tax credits. As these tax credits were scheduled to decline and then expire early in the next decade, the wind capacity additions may slow. Although the special tax incentives related to solar power ~~plants, accelerate~~also expire, the expected future decline in the cost of solar power equipment is predicted to sustain the growth of photovoltaic solar power generation facilities.

Major advances in the safe combination of horizontal drilling techniques and hydraulic fracturing led to the boom in natural gas supplies which have been available generally at ~~faster rates than projected,~~consistently low prices. However, reductions in production levels during the ~~number~~pandemic, an increase in the amount of ~~future~~liquid natural gas exports and heat-wave temperatures throughout the U.S., among other factors including the Russian invasion of Ukraine, strained domestic natural gas supplies and forced prices upwards. As a result, the price of natural gas in the U.S. increased meaningfully during the beginning of the 2022 calendar year. However, spot price declines are forecast to occur during the first quarter of calendar year 2023 and generally stabilize for the year.

Most of our recently completed and awarded EPC service contracts relate to the construction of natural gas-fired ~~construction project opportunities may fall.~~power plants located within the Mid-Atlantic geographic footprint of the electric power system operated by PJM, which includes all or part of thirteen states and the District of Columbia. This entity operates a capacity market which is a process to ensure long-term grid reliability by securing the appropriate amount of power supply resources needed to meet predicted future energy demands. Capacity payments represent meaningful portions of the revenue streams of qualifying power plants. Capacity auction for a particular delivery year were usually held during the month of May, three years prior to the actual delivery year. However, the 2023/2024 auction, scheduled for December 2021, was postponed until January 2022 and then was postponed again until June 2022. The auction results included increased capacity powered by nuclear, solar and natural gas energy sources, and decreased capacity provided by coal and wind energy sources. However, prices for the 2023/2024 delivery year were significantly lower than for the previous auction. Capacity auction prices are scheduled to be posted for 2024-2025 and 2025-2026 in December 2022 and June 2023, respectively. We expect that the capacity prices will rebound in the future as the PJM returns to a normal auction schedule with revised and fair auction rules.

~~Nonetheless,~~Nevertheless, we believe that ~~relatively low natural gas prices will persist over the long-term. Together with~~ 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. Natural gas is relatively clean burning, generally cost-effective and reliable. We believe that its benefits as a source of power are compelling, especially as a complement to the growing deployment of wind and solar powered energy sources. We continue to believe that the future long-term prospects for natural gas-fired power plant construction remain generally favorable as natural gas continues to be the primary source for power generation in our country. New gas-fired power plants incorporate major advances in gas-fired turbine technologies that have provided increased power plant efficiencies while providing the quick starting capabilities and the reliability that are necessary to balance the inherent intermittencies of wind and solar power plants.

~~It has been reported~~We believe that ~~renewables currently provide approximately 36%~~its benefits as a source of power are compelling, especially as a complement to the deployment of wind and solar powered energy sources, and that the future long-term prospects for natural gas-fired power plant construction remain generally favorable as natural gas continues to be the primary source for power generation in our country. The future availability of less carbon-intense and higher efficiency 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.

Throughout the U.S., the risk of electricity ~~generation in California. Yet, last summer’s experience~~shortages is rising as traditional power plants are being retired more quickly than they can be replaced by renewable energy and battery storage. Power grids are feeling the strain as the U.S. makes the historic transition from conventional power plants fueled by coal and natural gas to cleaner forms of energy such as wind and solar power, and aging nuclear plants are slated for retirement. Electric-grid operators are warning that power-generating capacity is struggling to keep up with demand, a gap that could lead to additional rolling blackouts during heat waves or other peak periods.

The challenge is that wind and solar farms do not produce electricity at all times and they need large batteries to store their output for later use. While large battery storage capacity is under development, regional grid operators have warned that the ~~increasing dependence on intermittent~~pace may not be fast enough to offset the closures of traditional power plants that can work around the clock.

Accelerating the build-out of renewable energy sources and batteries has become an especially difficult proposition amid supply-chain challenges and inflation. For example, earlier this year, the highly publicized probe by the U.S. Commerce Department into whether Chinese solar ~~is making it harder~~manufacturers are circumventing trade tariffs on solar panels had the effect of halting imports of key components needed to ~~ensure reliable power~~build new solar farms and effectively brought the U.S. solar industry to a temporary standstill; nevertheless, work at our solar energy project in ~~California as millions of its residents lost power~~Pennsylvania continued although at a slower-than-expected pace during ~~a late summer heat wave. Analysis of~~ the causes of this past winter’s widespread power outages in Texas during a frigid stretch of weather is complex. The residents of Texas suffered as the severe cold froze wind turbines and the lack of sun diminished the power contributions ofcurrent year.

Additionally, solar powered facilities. However, natural gas-fired power plants in Texas were forced offline as well primarily due to frozen well-site equipment and the decisions by regulators to prioritize natural gas for residential use, which caused interruptions to the supply of natural gas to the plants.

However, in both states, the significant amount of renewable power capacity failed to rise to the occasion. A diversity lesson from both power crises may be that fossil-fuel electricity generation sources remain critical elements of the power generation mix in order to assure grid reliability and the avoidance of power outages. With hopes of preventing future rolling blackouts in California, regulators there approved the acquisition of five emergency natural gas-fueled electricity generators with an aggregate power output of approximately 150 MW.

~~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. The costs associated with the necessary grid upgrades may be prohibitive. US

U.S. offshore wind projects progress inconsistently, facing challenges in the areas of environmental and fishery impacts, grid connection ~~and capability~~complexities, transmission planning and federal permitting processes. Further, U.S. projects are confronted by shipping regulations ~~in the US~~ that may limit the ability of developers to replicate successful European ~~construction and installation~~erection models. Proponents of clean energy also face political ~~challenges. Recently, voters~~challenges from constituencies who oppose the impacts to wildlife and the environment that may be caused by clean energy infrastructure projects.

Electricity generation from commercial nuclear power plants in the ~~state~~U.S. began in 1958. At the end of ~~Maine were energized by local residents seeking~~2021, the U.S. had 93 operating commercial nuclear reactors at 55 nuclear power plants in 28 states. The average age of these nuclear reactors is about 40 years old. The newest reactor in the fleet entered service in 2016, which was ten years after the previous one to ~~preserve pristine woodlands~~begin operation. There are two new reactors under construction in the U.S., Vogtle Units 3 and ~~rejected a project~~4. Co-owner Georgia Power projects that Unit 3 will enter service in the first quarter of calendar year 2023. The completion of these two units is many years behind schedule and the units are billions of dollars in excess of their initial estimated cost.

Renewed interest in nuclear power could result in the construction of new nuclear powered, carbon-free, electricity generation stations in the U.S. that would ~~transmit hydropower from Canada into New England.~~

~~Major advances~~use smaller and more economical nuclear reactors. 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. Such plants could be built in less time than larger plants, utilize less space and represent a viable choice for reliable power to offset the intermittencies of renewable power sources.The increase by the U.S. in its use of nuclear power for electricity generation could have unfavorable effects on the demand for new natural gas-fired and additional renewable energy facilities in the safe combination of horizontal drilling techniques and hydraulic fracturing led to the boom in natural gas supplies which have been available generally at consistently low prices. The abundant availability of cheap, less carbon-intense and higher efficiency natural gas in the US should continue to 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.future.

We believe that it is also important to note that the plans for certain natural gas-fired power plant projects include the ~~adoption~~integration of ~~integrated green hydrogen solution packages.~~hydrogen-burning capabilities. While the plants will initially burn natural gas alone, it is planned by the respective project owners that the plants will eventually burn a mixture of natural gas and green hydrogen, thereby establishing power-generation flexibility for these plants.

We believe this is a winning combination that provides inexpensive and efficient power, enhances grid reliability and addresses ~~the~~ clean-air ~~concerns of environmentalists.~~concerns. The building of state-of-the-art power plants with flex-fuel capability replaces coal-fired power plants in the short term with relatively clean gas-fired electricity generation. Further, such additions to the power generation fleet provide the potential for the plants to burn 100% green hydrogen gas, which would provide both base load power and long duration backup power, when the sun is not shining ~~and~~or the wind is not blowing, for extended periods of time and without certain harmful air emissions.

It has been stated that the current scramble for electricity, regardless of source, caused by the Russian invasion of Ukraine has clarified 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. Carbon capture processes grab carbon from smokestacks and other sources of dense greenhouse gases, thereby reducing harmful emissions. Carbon-removal technologies are more demanding as they remove carbon out of the more diffuse open air in order to store it for centuries. 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.

The foregoing discussion ofin our ~~Market Outlook~~“Market Outlook” does focus on the state of the domestic power market as the EPC services business of GPS provides the predominant amount of our revenues. However, ~~we cannot ignore the possibilities that~~ overseas power markets ~~may~~ provide important new power construction opportunities for us ~~in the future. The management of APC has growing enthusiasm for opportunities in the electricity generation markets~~especially across Ireland and the ~~UK.~~ U.K.

While both of these countries are committed to the increase in energy consumption sourced from wind and the sun on the pathway to net zero emissions, ~~by 2050,~~ there ~~appears to be~~is a recognition that these sources of electrical power are inherently variable. Other technologies will be required to support these power sources and to provide electricity when power demands exceed the amount of electricity supplied by these renewables. The existence of the necessary power reserve will require conventional ~~power~~ generation sources, typically natural gas-fired power plants. ~~As discussed above,~~ APC was awarded athe significant ~~contract during the quarter ended October 31, 2021~~Kilroot project late in Fiscal 2022 to build a clean burning natural gas-fired power plant in Northern Ireland so that existing coal-fired power sources there can be ~~shut-down.~~

replaced.

The U.K. usually holds auctions for power capacity about four years in advance of the delivery date and another auction for a smaller amount of capacity around a year before delivery. Evidence of the shifting power priorities in the U.K. are reflected in the results for Britain’s auction to ensure enough electricity capacity for 2022/2023 that were released earlier this year. Capacity cleared at a record high price unlike the results for the most recent PJM capacity auction. A total of nearly 5 gigawatts of capacity was procured in this auction, with nearly 70% of the power associated with gas-fired plants.

Last year, the Irish government ~~recently~~ 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 ~~energy~~battery storage ~~(i.e., batteries)~~ and generation from renewable ~~gases (i.e., biomethane and/or hydrogen produced from renewable sources).~~gases. The Irish government has approved that the development of new conventional generation (including gas-fired and gasoil distillate-fired generation) is a national priority and should be permitted and supported in order to ensure the security of electricity supply while supporting the growth of renewable electricity generation.

As noted above, APC recently entered into engineering and construction services contracts with the ESB to construct three 65 MW aero-derivative gas turbine flexible generation power plants around the city of Dublin, Ireland. All three projects are expected to operate intermittently during peak periods of electricity demand and as back-up supply options when renewable electricity generation is limited. A full notice to proceed has been received and project activities have commenced. Further, the Irish government has recognized that the successful development of data centers in the country is a key aspect in promoting Ireland as a digital economy hot-spot in Europe. In the absence of data centers, Ireland would be experiencing much more modest electricity demand growth, consistent with population growth and the general development of industrial demand. However, theThe stewards of the electricity supply in Ireland recognize that the large increase in electricity demand presented by the growth of the data center industry represents an evolving, significant risk to the security of the supply.

Accordingly, guidelines have been published recently with the intent to protect both electricity consumers and the security of supply while continuing to allow data centers to connect to the electricity system. Assessment criteria for applications of data centers to obtain grid connections include, among other

items, the ability of data center applicants to bring onsite dispatchable power generation (and/or storage) equivalent to or greater than their demand in order to support the security of supply. It is expected that any dispatchable on-site generation that uses fossil fuel sources developed by data center operators will use natural gas as the fuel ~~source; again, natural gas~~source. APC is ~~considered to be a transitional fuel in Ireland’s efforts to meet its climate action plan targets. Earlier this year, APC was awarded~~nearing completion of a project to install natural gas-fired power generation for a major data center in the Dublin area.

APC is actively pursuing other new business opportunities in both the renewable and support sectors with its existing and new clients. The governments of ~~both countries~~Ireland and the U.K. have already made funds available to develop and support specific ~~projects with notable announcements in the north east region of the UK.~~projects. The engineering and construction teams of APC are engaged in continuous discussions with particular stakeholders in certain of these other projects and ~~they are confident~~APC’s management believes that ~~APC~~it will be part of their eventual execution.

Over the past few years, GPS has provided top management guidance and project management expertise to APC as it completed its subcontract efforts for a biomass-burning power plant and won the awards of the projects to build new gas-fired power plant units near Belfast and Dublin. APC has provided project management manpower to GPS on several of its EPC services contracts. These recent experiences have demonstrated that the two companies can combine resources effectively. Considerations of the manner in which GPS and APC will work together in the future are becoming more substantive in view of emerging new business opportunities in the U.K. and Ireland, the strength of the reputation of GPS for successfully completing large gas-fired power plant projects in the U.S. and the growing recognition in the power community in Ireland and the U.K. that APC is positioned and has the capability to build larger and more complex power projects.

We are committed to the rational pursuit of new construction projects, including those with overseas locations and unique deployments of power-generation turbines, and the future growth of our revenues. This may result in ~~our decision~~additional decisions to make investments in the development and/or ownership of new projects. Because we believe in the strength of our balance sheet, we are willing to consider certain opportunities that include reasonable and manageable risks in order to assure the award of the related engineering, procurement, construction or equipment installation services contracts to us.

The competitive landscape for our core EPC services business related to natural gas-fired power plants in the U.S. has changed significantly over the last five years. While the domestic market remains dynamic, we are moving into an era where there may be fewer competitors for new gas-fired power plant EPC services project opportunities. Several major competitors have exited the market for a variety of reasons or have been acquired. Others have announced intentions to avoid entering into fixed-price contracts. Nonetheless, the competition for new utility-scale gas-fired power plant construction opportunities is fierce and still includes multiple global firms.

We believe that the Company has a reputation as an accomplished, dependable and cost-effective provider of EPC and other large project construction contracting services. With the proven ability to deliver completed power facilities, particularly combined cycle, natural gas-fired power plants, we are focused on expanding our position in the power markets of the U.S., Ireland and the U.K. where we expect investments to be made based on forecasts of electricity demand covering decades into the future. We believe that our expectations are valid and that our plans for the future continue to be based on reasonable assumptions.

Comparison of the Results of Operations for the Three Months Ended October 31, ~~2021~~2022 and ~~2020~~2021

We reported net income ~~attributable to our stockholders~~ of ~~$12.4~~$7.8 million, or ~~$0.78~~$0.56 per diluted share, for the three months ended October 31, ~~2021.~~2022. For the comparable period of the prior year, we reported net income ~~attributable to our stockholders~~ of ~~approximately $9.5~~$12.4 million, or ~~$0.60~~$0.78 per diluted share.

3028

The following schedule compares our operating results for the three months ended October 31, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands):


	Three Months Ended October 31,								Three Months Ended October 31,
	2021		2020		$ Change		% Change		2022		2021		$ Change		% Change
REVENUES
Power industry services	$	99,560	$	109,712	$	(10,152)	(9.3)	%	$	90,682	$	99,560	$	(8,878)	(8.9)	%
Industrial fabrication and field services		21,402		15,730		5,672	36.1			22,137		21,402		735	3.4
Telecommunications infrastructure services		3,489		1,889		1,600	84.7			5,056		3,489		1,567	44.9
Revenues		124,451		127,331		(2,880)	(2.3)			117,875		124,451		(6,576)	(5.3)
COST OF REVENUES
Power industry services		76,517		91,263		(14,746)	(16.2)			72,725		76,517		(3,792)	(5.0)
Industrial fabrication and field services		18,703		14,218		4,485	31.5			18,737		18,703		34	0.2
Telecommunications infrastructure services		3,096		1,507		1,589	105.4			4,205		3,096		1,109	35.8
Cost of revenues		98,316		106,988		(8,672)	(8.1)			95,667		98,316		(2,649)	(2.7)
GROSS PROFIT		26,135		20,343		5,792	28.5			22,208		26,135		(3,927)	(15.0)
Selling, general and administrative expenses		11,590		9,398		2,192	23.3			12,667		11,590		1,077	9.3
INCOME FROM OPERATIONS		14,545		10,945		3,600	32.9			9,541		14,545		(5,004)	(34.4)
Other income, net		1,117		175		942	538.3			768		1,117		(349)	(31.2)
INCOME BEFORE INCOME TAXES		15,662		11,120		4,542	40.8			10,309		15,662		(5,353)	(34.2)
Income tax expense		(3,269)		(1,666)		(1,603)	(96.2)			(2,551)		(3,269)		718	22.0
NET INCOME	$	12,393	$	9,454	$	2,939	31.1	%	$	7,758	$	12,393	$	(4,635)	(37.4)	%

Revenues

Power Industry Services

The revenues of the power industry services segment, representing the businesses of GPS and APC, decreased by ~~9.3%~~8.9%, or ~~$10.2~~$8.9 million, to $90.7 million for the three months ended October 31, 2022 compared with revenues of $99.6 million for the three months ended October 31, 2021 ~~compared with revenues of $109.7 million for the three months ended October 31, 2020~~ as the quarterly ~~revenues~~construction activities associated with the Guernsey Power Station project and Equinix data center project have passed peak ~~levels and APC completed its construction activities associated with the TeesREP project earlier this year. These reductions~~levels. The reduction in revenues between the quarters ~~were substantially~~was partially offset by increasing revenues ~~associated with~~at several projects including the ~~new~~Kilroot Power Station, the ESB FlexGen peaker plants and the Maple Hill ~~solar~~Solar energy ~~project, new projects at APC and the settlement of a legal matter.~~facility. The revenues of this business segment represented approximately ~~80.0%~~76.9% of consolidated revenues for the quarter ended October 31, ~~2021~~2022 and ~~86.2%~~80.0% of consolidated revenues for the corresponding prior year quarter.

The primary ~~drivers~~driver for the revenues of this segment for the three months ended October 31, ~~2020~~2021 were the revenues associated with the construction of the Guernsey Power Station as the construction activities on this project and the TeesREP project. Each of these projects reported significant quarterly revenues for last year’s third quarter. Together, the revenues associated with these two projects represented approximately 78.8% of consolidated revenues for the three-month period ended October 31, 2020.were at peak levels.

Industrial Fabrication and Field Services

The revenues of our industrial fabrication and field services segment, ~~(representing~~representing the business of ~~TRC)~~TRC, increased by ~~$5.7~~$0.7 million, or ~~36.1%~~3.4%, to ~~$21.4 million for the period compared to revenues of $15.7~~$22.1 million for the three months ended October 31, ~~2020.~~2022 compared to revenues of $21.4 million for the three months ended October 31, 2021 as the amounts of field services and pipe fabrication work increased between periods and were partially offset by declining revenues in vessel fabrication work. For the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, the revenues of this segment represented ~~17.2%~~18.8% and ~~12.4%~~17.2% of consolidated revenues for the corresponding periods.

TRC’s ~~strong~~ performance for the three-month period ended October 31, 2021 was particularly strong as it reflected a significant ~~rise~~increases in revenues earned on field services ~~projects~~activities during the ~~period. However, we expect the~~period, as well as increases in revenues ~~of TRC to decline over the remainder of the current fiscal year as TRC recently completed a number of major projects.~~associated with pipe and vessel fabrication works. The major customers of TRC include some of North America’s largest fertilizer producers, as well as other chemical, mining, forest products, construction and energy companies with plants, facilities and other sites located primarily in the southeastern region of the ~~US. The project backlog amounts for TRC as of October 31, 2021 and January 31, 2021 were $51.1 million and $54.0 million, respectively.~~U.S.

3129

Telecommunications Infrastructure Services

The revenue results of this business segment, ~~(representing~~which represent the business of ~~SMC)~~SMC, were ~~$3.5~~$5.1 million for the three-month period ended October 31, ~~2021,~~2022, an increase of $1.6 million, or ~~84.7%~~44.9%, from the amount of revenues earned during the three months ended October 31, ~~2020.~~2021. The improvement in revenues between the ~~quarters~~periods related to increased project activities for ~~both inside-premises~~outside-premises customers, and ~~outside-premises customers.~~new revenues provided by the customers of Lee Telecom, Inc. (“LTI”), a company acquired by SMC in December 2021.

Cost of Revenues

With the decrease in consolidated revenues for the three months ~~ended~~ October 31, ~~2021~~2022 compared with last year’s third quarter ended October 31, ~~2020,~~2021, the consolidated cost of revenues also decreased between the quarters. These costs were ~~$98.3~~$95.7 million and ~~$107.0~~$98.3 million for the ~~three month~~three-month periods ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, representing ana decrease of approximately ~~8.1%~~2.7%.

For the ~~three month~~three-month period ended October 31, ~~2021,~~2022, we reported a consolidated gross profit of approximately $22.2 million which represented a gross profit percentage of approximately 18.8% of corresponding consolidated revenues. The gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 19.8%, 15.4% and 16.8%, respectively, for the quarter ended October 31, 2022.

Our consolidated gross profit reported for the three-month period ended October 31, 2021 was $26.1 million, which represented a gross profit percentage of approximately 21.0% of corresponding consolidated revenues. Most significantly, the gross profit for the period reflected the profit contributions of the construction activities related to the major projects of the power industry services segment, the recovery of TRC’s business from its low level of activity last year during the early months of the COVID-19 pandemic and the revenues recorded for the current quarter related to the settlement of the legal matter identified above. The gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 23.1%, 12.6% and 11.3%, respectively, for the quarter ended October 31, 2021.

Our consolidated gross profit reported for the three-month period ended October 31, 2020 was $20.3 million, which represented a gross profit percentage of approximately 16.0% of corresponding consolidated revenues. The gross profit for the three months ended October 31, 2020 included the profit contribution of the construction activities related to the Guernsey Power Station. It was also favorably impacted by the profit contributions of APC, which reflected the final significant change to the contractual arrangements covering the construction activities of the TeesREP Project subcontract. For the three months ended October 31, 2020, the gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 16.8%, 9.6% and 20.2%, respectively.

Selling, General and Administrative Expenses

These costs were ~~$11.6~~$12.7 million and ~~$9.4~~$11.6 million for the three months ended October 31, ~~2021~~2022 and ~~2020,~~2021, respectively, representing ~~a 23.3%~~an increase of $1.1 million between the quarters, or 9.3%, which ~~occurred within each of our reporting segments~~was due primarily to ~~increased personnel and~~the accrual of costs associated ~~costs, including cash incentive and stock compensation expenses, and increased business development costs.~~with the retirement of the Company’s former chief executive officer in August 2022.

Other Income, Net

We reported other income, net, in the amount of $0.8 million for the three months ended October 31, 2022, which included primarily income earned on funds maintained in money market accounts and interest income earned on CDs, as interest rates have increased meaningfully between periods. We reported other income, net, in the amount of $1.1 million for the three months ended October 31, 2021, which reflected primarily a cost reimbursement grant from the Irish government related to the COVID-19 pandemic.

Income Taxes

We ~~reported~~incurred income tax expense for the three months ended October 31, ~~2021~~2022 in the amount of approximately ~~$3.3~~$2.6 million, which represents an effective ~~income~~ tax rate of ~~20.9%~~24.7% for the ~~period. We estimate that our~~period and which reflects a currently estimated annual effective income tax rate ~~for the year ending January 31, 2022, before discrete items, will approximate 23.3%~~of 23.8%. This estimated tax rate differs from the statutory federal tax rate of 21% due primarily to the unfavorable estimated effects of state income taxes and permanent differences, including ~~primarily~~ certain nondeductible executive compensation and ~~overseas~~global intangible low taxed income ~~deemed to be Global Intangible Low-Taxes Income~~ (“GILTI”).

For the three months ended October 31, ~~2020,~~2021, we ~~recorded~~reported income tax expense in the amount of approximately ~~$1.7~~$3.3 million, which ~~reflected~~represented an ~~annual~~ effective income tax rate of ~~approximately 23.9%~~20.9% for the year, before discrete items, that was estimated at the time. This tax rate differed from the statutory federal tax rate of 21% due primarily to the unfavorable effects of permanent differences, including certain nondeductible executive compensation.period.

Comparison of the Results of Operations for the Nine Months Ended October 31, ~~2021~~2022 and ~~2020~~2021

We reported net income ~~attributable to our stockholders~~ of ~~$36.0~~$19.5 million, or ~~$2.25~~$1.36 per diluted share, for the nine months ended October 31, ~~2021.~~2022. For the nine months ended October 31, ~~2020,~~2021, we reported net income ~~attributable to our stockholders~~ of ~~$14.3~~$36.0 million, or ~~$0.91~~$2.25 per diluted share.

The following schedule compares our operating results for the nine months ended October 31, ~~2021~~2022 and ~~2020~~2021 (dollars in thousands):

Nine Months Ended October 31,


2021

2020

$ Change

% Change

REVENUES









Power industry services

$
295,736

$
227,363

$
68,373

30.1
%
Industrial fabrication and field services

78,213

42,163

36,050

85.5

Telecommunications infrastructure services

9,851

5,445

4,406

80.9

Revenues

383,800

274,971

108,829

39.6

COST OF REVENUES









Power industry services

233,682

192,583

41,099

21.3

Industrial fabrication and field services

64,519

38,096

26,423

69.4

Telecommunications infrastructure services

8,098

4,310

3,788

87.9

Cost of revenues

306,299

234,989

71,310

30.3

GROSS PROFIT

77,501

39,982

37,519

93.8

Selling, general and administrative expenses

31,813

28,827

2,986

10.4

INCOME FROM OPERATIONS

45,688

11,155

34,533

309.6

Other income, net

1,569

1,714

(145)

(8.5)

INCOME BEFORE INCOME TAXES

47,257

12,869

34,388

267.2

Income tax (expense) benefit

(11,228)

1,391

(12,619)

NM

NET INCOME

$
36,029

$
14,260

$
21,769

152.7
%

~~NM – Not meaningful.~~


	Nine Months Ended October 31,
	2022		2021		$ Change		% Change
REVENUES
Power industry services	$	255,958	$	295,736	$	(39,778)	(13.5)	%
Industrial fabrication and field services		67,660		78,213		(10,553)	(13.5)
Telecommunications infrastructure services		12,644		9,851		2,793	28.4
Revenues		336,262		383,800		(47,538)	(12.4)
COST OF REVENUES
Power industry services		202,985		233,682		(30,697)	(13.1)
Industrial fabrication and field services		56,968		64,519		(7,551)	(11.7)
Telecommunications infrastructure services		9,976		8,098		1,878	23.2
Cost of revenues		269,929		306,299		(36,370)	(11.9)
GROSS PROFIT		66,333		77,501		(11,168)	(14.4)
Selling, general and administrative expenses		34,226		31,813		2,413	7.6
INCOME FROM OPERATIONS		32,107		45,688		(13,581)	(29.7)
Other income, net		1,868		1,569		299	19.1
INCOME BEFORE INCOME TAXES		33,975		47,257		(13,282)	(28.1)
Income tax expense		(14,510)		(11,228)		(3,282)	(29.2)
NET INCOME	$	19,465	$	36,029	$	(16,564)	(46.0)	%

Revenues

Power Industry Services

The revenues of the power industry services segment ~~increased~~decreased by ~~30.1%~~13.5%, or ~~$68.4~~$39.8 million, to $256.0 million for the nine months ended October 31, 2022 compared with revenues of $295.7 million for the nine months ended October 31, 2021 ~~compared~~as the construction activities associated with the Guernsey Power Station project have passed peak levels. The reduction in revenues between the periods was partially offset by an increase in the revenues of ~~$227.4 million~~the Maple Hill solar energy facility and several APC projects including the Kilroot Power Station, the ESB FlexGen peaker plants and the Equinix data center project. The revenues of this business segment represented approximately 76.1% of consolidated revenues for the nine months ended October 31, ~~2020. The revenues of this segment represented approximately~~2022 and 77.1% of consolidated revenues for the nine-month period ended October 31, ~~2021, and approximately 82.7% of consolidated revenues for the nine-month period ended October 31, 2020.~~2021.

The primary drivers for the ~~strong performance by~~revenues of this ~~reportable~~ segment for the nine months ended October 31, 2021 were ~~increased~~the revenues associated with the construction of the Guernsey Power Station and the ~~new~~ Maple Hill ~~solar~~Solar energy facility, which together represented 66.8% of consolidated revenues. Last year, the revenues of this segment included primarily revenues associated with the construction of the Guernsey Power Station project, the TeesREP project and other projects of APC. Together, the revenues related to the Guernsey power station and the TeesREP project represented 77.4% of consolidated revenues for the nine months ended October 31, 2020.facility.

Industrial Fabrication and Field Services

The revenues of our industrial fabrication and field services segment ~~provided~~decreased by $10.6 million, or 13.5%, to $67.7 million for the nine months ended October 31, 2022 compared to revenues of $78.2 million for the nine months ended October 31, 2021 as the amount of pipe and vessel fabrication and field services declined. For the nine months ended October 31, 2022 and 2021, the revenues of this segment represented 20.1% and 20.4% of consolidated revenues for the corresponding periods.

Telecommunications Infrastructure Services

The revenue results of this business segment were $12.6 million for the nine-month period ended October 31, 2022, an increase of $2.8 million, or 28.4%, from the amount of revenues earned during the nine months ended October 31, 2021. The improvement was due primarily to the addition of the revenues of LTI to current year results.

Cost of Revenues

With the decrease in consolidated revenues for the nine months ended October 31, 2022 compared with last year’s nine-month period ended October 31, 2021, the consolidated cost of revenues also decreased between the periods. These costs were $269.9 million and $306.3 million for the nine months ended October 31, 2022 and 2021, respectively, representing a decrease of approximately 11.9%.

For the nine-month period ended October 31, 2022, we reported a consolidated gross profit of approximately $66.3 million, which represented a gross profit percentage of approximately 19.7% of corresponding consolidated revenues. The gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 20.7%, 15.8% and 21.1%, respectively, for the nine months ended October 31, 2022.

Our consolidated gross profit reported for the nine-month period ended October 31, 2021 which reflected an increase in revenues of $36.1 million, or 85.5%, to $78.2 million compared to revenues of $42.2 million for the nine-month period ended October 31, 2020. The improved current year business of TRC reflects increased project activity for several customers, primarily in field services.

~~Telecommunications Infrastructure Services~~

The revenues of this business segment were $9.9 million for the nine-month period ended October 31, 2021 compared with revenues of $5.4 million for the nine-month period ended October 31, 2020, which represented an increase of 80.9% between the periods and which reflected strong performance by both the inside-premises and outside-premises groups.

~~Cost of Revenues~~

With the increase in consolidated revenues for the nine-month period ended October 31, 2021 compared with last year’s corresponding period, the consolidated cost of revenues also increased between the periods by 30.3%. These costs were $306.3 million and $235.0 million for the nine-month periods ended October 31, 2021 and 2020, respectively.

~~For the nine-month period ended October 31, 2021, we reported a consolidated gross profit of approximately~~was $77.5 million, which represented a gross profit percentage of approximately 20.2% of corresponding consolidated revenues. The gross profit for the period reflected primarily the profit contributions of efficient construction activities related to the major projects of the power industry services reporting segment and the settlement of a legal matter in the third quarter. The gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 21.0%, 17.5% and 17.8%, respectively, for the nine-month period ended October 31, 2021.

For the nine months ended October 31, 2020, we reported a consolidated gross profit of approximately $40.0 million which represented a gross profit percentage of approximately 14.5% of corresponding consolidated revenues which was adversely affected primarily by the low level of revenues reported by TRC for the period. The gross profit percentages of corresponding revenues for the power industry services, industrial services and the telecommunications infrastructure segments were 15.3%, 9.6% and 20.8%, respectively, for the nine-month period ended October 31, 2020.

Selling, General and Administrative Expenses

These costs were ~~$31.8~~$34.2 million and ~~$28.8~~$31.8 million for the nine-month periods ended October 31, 2021 and 2020, respectively, which represented an increase of approximately $3.0 million, or 10.4%, between the periods, and which occurred substantially during the third quarter of the current year as identified above.

~~Other Income, Net~~

For the nine months ended October 31, 2021 the amount of other income, net, was approximately $1.6 million, due substantially to two transactions related to APC. As disclosed above, APC received COVID-19 relief from the Irish government, which amounted to approximately $1.1 million, that was recognized during the third quarter of the current year. In April 2021, APC received a research and development credit payment from the government of the UK related to certain qualifying works performed during Fiscal 2019. Net of associated costs, the payment amount of $0.7 million, much like a grant, was included in other income for the nine-month period ended October 31, 2021. This line item also included ~~our share of the net loss reported by the solar fund investment~~ for the nine months ended October 31, 2022 and 2021, respectively, representing an increase of $2.4 million between the periods, or 7.6%, due primarily to the executive retirement costs described above, increased stock compensation expense and increased professional fees.

Other Income, Net

We reported other income, net, in the amount of ~~$0.4~~$1.9 million ~~that is discussed in Note 10 to~~for the ~~accompanying condensed consolidated financial statements.~~

~~Typically, the amounts reported on this line include~~nine months ended October 31, 2022 which included primarily our share of earnings associated with our solar fund investments and income earned on funds maintained in money market accounts and interest income earned on CDs. ~~Adverse economic reactions to~~

We reported other income, net, in the ~~uncertainties~~amount of the COVID-19 pandemic commenced during the middle of last year’s first quarter ended April 30, 2020, including sharp reductions in investment interest rates. Other income from earnings on our temporary investments of excess cash$1.6 million for the ~~nine-month period~~nine months ended October 31, 2021 ~~was insignificant although~~due substantially to two transactions related to APC. In addition to the ~~aggregate~~COVID-19 relief received from the Irish government as discussed above, APC received a research and development credit payment last year from the government of the U.K. related to certain qualifying works performed during Fiscal 2019 in the amount of ~~invested funds increased between the periods. For the nine-month period ended October 31, 2020,~~$0.7 million. This line item also reflected our share of the net loss reported by a solar fund investment in the amount of ~~other income of $1.7 million included primarily earnings on our temporary investments of excess cash before the pandemic.~~

$0.4 million.

Income Taxes

We ~~reported~~incurred income tax expense for the ~~nine-month period~~nine months ended October 31, ~~2021~~2022 in the amount of approximately ~~$11.2~~$14.5 million, ~~which represents an actual~~including the aforementioned unfavorable adjustment in the amount of $6.2 million related to the settlement of research and development claims with the IRS. Excluding the effect of this adjustment, our effective income tax rate ~~of 23.8%~~for the nine-months ended October 31, 2022 was 24.5%. As indicated above, we estimate that our annual effective income tax rate for the year ending January 31, ~~2022, before discrete items,~~2023 will approximate ~~23.3%~~23.8%. ~~The~~This estimated annual effective tax rate differs from the statutory federal tax rate of 21% due primarily to the unfavorable effects of state income taxes and permanent differences, including certain nondeductible executive compensation and overseas income deemed to be GILTI.

For the ~~nine-month period~~nine months ended October 31, ~~2020,~~2021, we ~~recorded an~~reported income tax ~~benefit~~expense in the amount of approximately ~~$1.4~~$11.2 million, which ~~reflected~~represented an actual effective income tax rate of 23.8% for the period. This effective tax rate differed from the statutory federal tax rate of 21% due primarily ~~the net operating loss carryback benefit amount of $4.4 million discussed in Note 10~~ to the ~~accompanying condensed consolidated financial statements.~~unfavorable effect of state income taxes and permanent differences.

Liquidity and Capital Resources as of October 31, ~~2021~~2022

At October 31 and January 31, ~~2021,~~2022, our balances of cash and cash equivalents were ~~$391.6~~$136.1 million and ~~$366.7~~$350.5 million, ~~respectively.~~ respectively, which represented a decrease of $214.4 million.

The net amount of cash used in operating activities for the nine months ended October 31, 2022 was $73 million. Our net income for the nine months ended October 31, 2022, adjusted favorably by the net amount of non-cash income and expense

items, represented a source of cash in the total amount of $25.2 million. However, reductions in the balance of contract liabilities and the combined level of accounts payable and accrued expenses in the amounts of $78.9 million and $8.0 million, respectively, represented uses of cash. Both of these reductions related primarily to the decline in the construction activity of the Guernsey Power Station project, partially offset by an increase in contract liabilities at several APC projects. Additionally, the increase in contract assets and accounts receivable in the amounts of $6.6 million and $10.9 million, respectively, represented uses of cash during the period. The decrease in the amount of other assets in the amount of $6.2 million, represented a source of cash during the period.

During the nine months ~~between these dates,~~ended October 31, 2022, we also used cash to increase the level of our ~~working~~short-term investments, which consist entirely of CDs issued by the Bank, by $59.8 million and to make capital ~~increased by $30.5~~expenditures in the amount of $2.6 million. We also used $73.8 million cash in financing activities during the nine months ended October 31, 2022, including $63.3 million used to ~~$300.7~~repurchase shares of common stock pursuant to our Share Repurchase Plan, and $10.6 million asused for the payment of regular cash dividends. As of October 31, 2022, there were no restrictions with respect to intercompany payments between GPS, TRC, APC, SMC and the holding company.

During the nine months ended October 31, 2021, ~~from $270.1 million as~~our balance of ~~January 31, 2021.~~

cash and cash equivalents increased by a net amount of $24.9 million. The net amount of cash provided by operating activities for the nine months ended October 31, 2021 was $41.7 million. Our net income for the ~~nine months ended October 31, 2021,~~period, adjusted favorably by the net amount of non-cash income and expense items, represented a source of cash in the total amount of $45.6 million. The sources of cash from operations ~~for the nine months ended October 31, 2021~~ also included a decrease in the balance of contract assets in the amount of $16.7 million. A reduction in the combined level of accounts payable and accrued expenses and an increase in accounts receivable during the nine-month period ended October 31, 2021, in the respective amounts of $20.0 million and $7.1 million, represented uses of cash for the period. Contract liabilities increased by $4.4 million during the nine months ended October 31, 2021, representing a source of cash. It is important to note that the amount of contract liabilities related to the Guernsey Power Station are expected to decline during the remainder of the current fiscal year, representing a use of cash, as the project moves past the peak level of construction activities. The amount of prepaid expenses and other assets decreased by $2.1 million during the nine months ended October 31, 2021, which also represented a source of cash for the period.

Another source of cash for the nine months ended October 31, 2021 were the proceeds associated with the exercise of stock options in the amount of $1.4 million. Non-operating activities used cash during the nine months ended October 31, 2021, including the payment of regular cash dividends in the amount of $11.8 million, investment payments made to a solar energy fund in the amount of $4.1 million and capital expenditures in the amount of $1.1 million. As of October 31, 2021, there were no restrictions with respect to inter-company payments between GPS, TRC, APC, SMC and the holding company. However, certain loans made by Argan to APC have been determined to be uncollectible.

The net amount of cash provided by operating activities for the nine months ended October 31, 2020 was $142.6 million. Our net income for the nine months ended October 31, 2020, adjusted favorably by the net amount of non-cash income and expense items, represented a source of cash in the total amount of $30.2 million. However, the sources of cash from operations for the prior year period included primarily a temporary increase in the balance of contract liabilities associated with the early phases of the Guernsey Power Station construction and new project awards at TRC in the amount of $87.9 million. Reductions in the balances of accounts receivable and contract assets, primarily at the TRC and APC operations, provided cash in the amounts of $6.6 million and $6.2 million, respectively. In addition, the combined level of accounts payable and accrued expenses increased by $27.7 million during the nine months ended October 31, 2020, a source of cash for the period.

As discussed above, our income tax accounting for the nine months ended October 31, 2020 reflected an entry to record the carryback of our net operating loss incurred for the year ended January 31, 2020 to prior income tax years. The loss carryback should result in a refund of federal income taxes in the amount of $12.7 million. This tax refund receivable was included in the balance of other current assets as of October 31, 2020, which was the primary cause of the increase in this balance of $16.0 million during the period, a use of cash.

Primary sources of cash for the nine months ended October 31, 2020 were the net maturities of short-term investments, certificates of deposit issued by the Bank, in the amount of $70.0 million. Non-operating activities used cash during the nine months ended October 31, 2020, including the payment of regular and special cash dividends in the total amount of $27.4 million and capital expenditures in the amount of $1.4 million. Partially offsetting these uses of cash, we received cash proceeds related to the exercise of stock options during the nine months ended October 31, 2020 in the amount of $1.2 million.

At October 31, ~~2021, most~~2022, a portion of our balance of cash and cash equivalents was invested in ~~government and prime~~a money market ~~funds~~fund with most of ~~their~~its total assets invested in cash, USU.S. Treasury obligations and repurchase agreements secured by USU.S. Treasury 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 UKU.K. in support of the operations of APC.

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, 2022, our net liquidity decreased by $53.8 million to $230.4 million as of October 31, 2022 from $284.3 million as of January 31, 2022, due primarily to common stock repurchases and cash dividends, partially offset by our net income for the period. As we have no debt service, our fixed asset acquisitions in a reporting period are typically low, and net liquidity includes our short-term investments, our levels of working capital are not subjected to the volatility that affects our levels of cash and cash equivalents.

The original term of our ~~Amended and Restated Replacement~~ Credit Agreement with the Bank was scheduled to expire on May 31, 2021. During April 2021, the Company and the Bank agreed to an amendment to the Credit Agreement which extended the expiration date of the Credit Agreement to May 31, 2024 and reduced the borrowing rate. The Credit Agreement ~~as amended,~~ includes the following features, among others: a lending commitment of $50.0 million including a revolving loan with interest at the 30 day LIBOR plus 1.6% (reduced from 2.0%), and an accordion feature which allows for an additional commitment amount of $10.0 million, subject to certain conditions. We may also use the borrowing ability to cover other credit instruments issued by the Bank for our use in the ordinary course of business as defined by the Bank. At October 31, ~~2021,~~2022, we had no outstanding ~~borrowings,~~borrowings; however, ~~subsequent to October 31, 2021,~~ the Bank has issued letters of credit in the total outstanding amount of ~~$19.9~~$8.2 million in support of the activities of APC under a new customer ~~contract.~~contracts. In connection with the ~~current~~ project development activities of the VIE, the Bank issued a letter of credit, outside the scope of the Credit Agreement, in the approximate amount of $3.4 million for

which we have provided cash collateral. The Company expects to amend the Credit Agreement again before the end of Fiscal 2023 in order to replace LIBOR with an equivalent benchmark rate. The Company does not expect that the change will materially impact its consolidated financial statements.

We have pledged the majority of our assets to secure the 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 ~~as amended,~~ requires that we comply with certain financial covenants at our fiscal year-end and at each fiscal quarter-end, and 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. At October 31, ~~2021~~2022 and January 31, ~~2021,~~2022, we were compliant with the covenants of the Credit ~~Agreement, as amended.~~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 ~~contractor~~ 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 ~~issued~~provided on behalf of a subsidiary 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, ~~2021,~~2022 and January 31, 2022, the ~~value~~estimated amounts of the Company’s unsatisfied bonded performance obligations, covering all of its subsidiaries, ~~was~~were approximately ~~$272.4 million. In addition, as~~$0.1 billion and $0.2 billion, respectively. As of October 31, ~~2021, there were~~2022 and January 31, 2022, the outstanding amounts of bonds ~~outstanding in the aggregate amount of approximately $0.8 million~~ covering other risks, including warranty obligations related to completed ~~activities; these bonds expire at various dates over the next twelve (12) months.~~activities, were not material. Not all of our projects require bonding.

We have also provided a financial guarantee on behalf of GPS to an original equipment manufacturer in the amount of $3.6 million to support project developmental efforts. A liability was established for the estimated loss related to this guarantee during Fiscal 2022.

When sufficient information about claims related to our performance on projects would be available and monetary damages or other costs or losses would be determined to be probable, we would record such losses. As our subsidiaries are wholly-owned, any actual liability related to contract performance is ordinarily reflected in the financial statement account balances determined pursuant to the Company’s accounting for contracts with customers. Any amounts that we may be required to pay in excess of the estimated costs to complete contracts in progress as of October 31, ~~2021~~2022 are not estimable.

~~As noted above,~~Until recently, returns on money market instruments and certificates of deposit ~~are currently minimal~~were limited for some time due to market conditions. With the desire to increase the amount of return on its available cash, the Company ~~invested~~made prior year investments of approximately ~~$4.1~~$6.3 million ~~during the nine months ended October 31, 2021~~ in a limited liability ~~company~~companies that ~~makes~~make equity investments in solar energy projects that are eligible to receive energy tax credits. ~~During Fiscal 2021, we made a similar investment in the amount of $1.3 million.~~ ~~The current year investment is expected to provide an overall return of approximately 20% over the six-year expected life of our investment.~~ It is likely that we will evaluate opportunities to make ~~larger~~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 cash generated from our future operations, with or without funds available under our 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.

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, 2022 and 2021, respectively (amounts in thousands).


	Three Months Ended
	October 31,
	2022		2021
Net income, as reported	$	7,758	$	12,393
Income tax expense		2,551		3,269
Depreciation		740		819
Amortization of purchased intangible assets		212		227
EBITDA	$	11,261	$	16,708


	Nine Months Ended
	October 31,
	2022		2021
Net income, as reported	$	19,465	$	36,029
Income tax expense		14,510		11,228
Depreciation		2,296		2,560
Amortization of purchased intangible assets		611		680
EBITDA	$	36,882	$	50,497

We believe that EBITDA is a meaningful presentation that enables us to assess and compare our operating ~~cash flow~~ 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.

~~The table following immediately below presents the determinations of EBITDA for the three and nine months ended October 31, 2021 and 2020, respectively (amounts in thousands).~~

Three Months Ended

October 31,

2021

2020

Net income, as reported

$
12,393

$
9,454

Income tax expense

3,269

1,666

Depreciation

819

940

Amortization of purchased intangible assets

227

226

EBITDA

16,708

12,286

EBITDA of non-controlling interests

—

—

EBITDA attributable to the stockholders of Argan, Inc.

$
16,708

$
12,286

Nine Months Ended

October 31,


2021

2020
Net income, as reported

$
36,029

$
14,260
Income tax expense (benefit)

11,228

(1,391)
Depreciation

2,560

2,798
Amortization of purchased intangible assets

680

677
EBITDA

50,497

16,344
EBITDA of non-controlling interests

—

(40)
EBITDA attributable to the stockholders of Argan, Inc.

$
50,497

$
16,384

However, as EBITDA is not a measure of performance calculated in accordance with USU.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 USU.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.

As we believe that our net cash flow provided by operations is the most directly comparable performance measure determined in accordance with US GAAP, the table below reconciles the amounts of EBITDA for the applicable periods to the corresponding amounts of net cash flows provided by operating activities that are presented in our condensed consolidated statements of cash flows for the nine months ended October 31, 2021 and 2020 (amounts in thousands).

Nine Months Ended

October 31,

2021

2020

EBITDA

$
50,497

$
16,344

Current income tax (expense) benefit

(10,845)

9,757

Stock compensation expense

2,521

2,199

Other non-cash items

3,407

1,911

(Increase) decrease in accounts receivable

(7,084)

6,585

Decrease (increase) in other assets

2,070

(15,976)

(Decrease) increase in accounts payable and accrued expenses

(19,966)

27,725

Change in contracts in progress, net

21,099

94,015

Net cash provided by operating activities

$
41,699

$
142,560

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; the accounting for business combinations; the subsequent valuation of goodwill, other indefinite-lived assets and long-lived assets; ~~the valuation of employee common stock-based awards;~~ 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 typically, as well as the accounting and reporting for special purpose entities including joint ventures and variable interest entities. An expanded discussion of our critical accounting policies is included in Item 7 of Part II of our Annual Report. During the ~~nine~~three months ended October 31, ~~2021,~~2022, there have been no material changes in the way we apply the critical accounting policies described therein.

Recently Issued Accounting Pronouncements

~~In December 2019, the FASB issued ASU 2019-12,~~ ~~Simplifying the Accounting for Income Taxes~~, which, among other changes, eliminates the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the expected loss for the entire year. In these instances, the estimated annual effective income tax rate shall be used to calculate the tax without limitation. The new standard also requires the recognition of a franchise (or similar) tax that is partially based on income as an income-based tax and the recording of any incremental tax that is incurred by us as a non-income based tax. Our adoption of this new guidance, effective on February 1, 2021, did not alter our accounting for income taxes.

There are no ~~other~~ recently issued accounting pronouncements that have not yet been adopted that we consider material to our consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our results of operations may be subject to risks related to fluctuations in interest rates. As of October 31, ~~2021,~~2022, we had no outstanding borrowings under our financing arrangements with the Bank ~~as amended~~ (see Note 6 to the accompanying condensed consolidated financial statements), which provide a revolving loan with a

maximum borrowing amount of $50.0 million that is available until May 31, 2024 with interest at 30-day LIBOR plus 1.6% going forward. During the nine months ended October 31, ~~2021~~2022 and ~~2020,~~2021, we did not enter into derivative financial instruments for trading, speculation or other purposes that would expose us to market risk.

Financial markets around the globe are preparing for the pending discontinuation of LIBOR, ~~at the end of 2021,~~ which is the widely used indicator of basis for short-term lending rates. The transition from LIBOR is market-driven, not a change required by regulation. The USU.S. and other countries are currently working to replace LIBOR with alternative reference rates. We do not expect that the replacement of LIBOR as the basis for the determination of our short-term borrowing rate will have any significant effects on ~~the~~our financial arrangements with the Bank ~~as amended,~~ or our financial reporting.

We maintain a substantial amount of our temporarily investable cash in certificates of deposit and in ~~government and prime~~a money market ~~funds~~fund (see Note 3 of the accompanying condensed consolidated financial statements). ~~The~~As of October 31, 2022, the weighted average number of days until maturity for the short-term investments and money market ~~funds is 341~~fund was 296 days. ~~As of October 31, 2021, the~~The weighted average annual interest rate of our certificates of deposit of ~~$90.0~~$149.8 million, which are classified as short-term investments, and the money market ~~funds~~fund balance of ~~$262.5~~$49.1 million was ~~0.07%~~2.57%. To illustrate the potential impact of changes in the overall interest ~~rates~~rate associated with our investable cash balance at October 31, 2022 on our annual results of operations, we present the following hypothetical ~~analysis, which~~analysis. It assumes that our condensed consolidated balance sheet as of October 31, ~~2021~~2022 remains constant, and no further actions are taken to alter our existing interest rate sensitivity, including reinvestments. As the blended weighted average interest rate was ~~0.07%~~2.57% at October 31, ~~2021,~~2022, the largest decrease in the interest rates presented below is 7257 basis points (dollars in thousands).


	Increase (Decrease) in		Increase (Decrease) in		Net Increase (Decrease) in		Increase (Decrease) in		Increase (Decrease) in		Net Increase (Decrease) in
Basis Point Change	Interest Income		Interest Expense		Income (pre-tax)		Interest Income		Interest Expense		Income (Pre-Tax)
Up 300 basis points	$	9,850	$	—	$	9,850	$	3,177	$	—	$	3,177
Up 200 basis points		6,566		—		6,566		2,118		—		2,118
Up 100 basis points		3,283		—		3,283		1,059		—		1,059
Down 7 basis points		(186)		—		(186)
Down 100 basis points								(1,059)		—		(1,059)
Down 200 basis points								(1,880)		—		(1,880)
Down 257 basis points								(2,324)		—		(2,324)

With the consolidation of APC, we are subject to the effects of translating the financial statements of APC from its functional currency (Euros) into our reporting currency ~~(US~~(U.S. dollars). ~~Such~~For example, the amounts of cash, revenues and backlog reported for APC in our condensed consolidated financial statements have declined through the nine months ended October 31, 2022 as the Euro has depreciated significantly versus the U.S. dollar. The effects of translation are recognized in accumulated other comprehensive loss, which is net of tax when applicable. APC remeasures transactions and subsidiary financial statements denominated in local currencies to Euros. Gains and losses on the remeasurements are recorded asin the other income ~~or expense in~~line of our condensed consolidated statement of earnings.

In the “Risk Factors” section of our Annual Report, we included a 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.

We are subject to fluctuations in prices for commodities including steel products, copper, concrete and fuel. Although we attempt to secure firm quotes from our suppliers, we generally do not hedge against increases in prices for these commodities. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts. We attempt to include the anticipated amounts of price increases or decreases in the costs of our bids. In times of increased supply cost volatility, we may take other steps to reduce our risks. For example, we may hold quotes related to materials in our industrial fabrication and field services segment for ~~only three days.~~very short periods. For major fixed price contracts in our power industry services segment, we may mitigate material cost risks by procuring the majority of the equipment and construction supplies during the early phases of a project. The profitability of our active jobs has not suffered meaningfully from the periodic global surges in non-residential construction material costs.

~~For the current year, our~~Our operations have been challenged by the well-publicized global supply chain disruptions. While ~~the~~ management of the risks associated with the inability to obtain machinery, equipment and other materials when needed continues to include our best efforts, we are concerned that the supply chain uncertainties may be impacting project owners’ confidence in commencing new work which may adversely affect our expected levels of revenues until the supply chain disruptions dissipate.

ITEM 4. CONTROLS AND PROCEDURES

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, ~~2021.~~2022. 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, ~~2021,~~2022, 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, ~~2021~~2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

ITEM 1. LEGAL PROCEEDINGS

Included in Note 8 to the condensed consolidated financial statements that are included in Item 1 of Part I of this Quarterly Report on Form 10-Q is the discussion of the status of the legal proceeding that was settled in September 2021. In the normal course of business, we may have ~~other~~ pending claims and legal proceedings. It is our opinion, based on information available at this time, that any other current claim or proceeding will not have a material effect on our condensed consolidated financial statements.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in our Annual Report.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On ~~June 24, 2020,~~September 8, 2022, we made a filing on Current Report Form 8-K announcing ~~that~~an additional authorized increase in our ~~board of directors authorized the repurchase of up~~Share Repurchase Plan, from $75 million to ~~$25.0 million of our issued and outstanding common stock through June 2022 (the “Repurchase Plan”).~~$100 million. The repurchases may occur in the open market or through investment banking institutions, privately-negotiated transactions, or direct purchases, and the timing and amount of stock ~~repurchased~~repurchase transactions will depend on market and business conditions, applicable legal and credit requirements and other corporate considerations.

In accordance with the SEC’s Rule 10b5-1, and pursuant to the Share Repurchase Plan, we have allowed, and may in the future allow, the repurchase of our common stock during trading blackout periods by an investment banking firm or other institution agent acting on our behalf pursuant to predetermined parameters.

~~Subsequent~~37

Information related to our share repurchases for the three months ended October 31, ~~2021, we made our initial repurchases~~2022 follows:


				Total Number of	Value of Shares That May Yet
				Shares Purchased as Part of	Be Purchased under the
	Total Number of	Average Price per		Publicly Announced	Plans or Programs
Period	Shares Repurchased	Share Paid		Plans or Programs	(Dollars in Thousands)
August 1 - 31, 2022	—	$	—	—	$	1,460
September 1 - 30, 2022	164,200	$	32.70	164,200	$	21,090
October 1 - 31, 2022	144,223	$	32.68	144,223	$	16,376
Total	308,423	$	32.69	308,423

Under the Share Repurchase Plan and as of October 31, 2022, the Company has repurchased 2,248,767 shares of its common stock ~~pursuant~~since November 2021 (when it began to ~~the Repurchase Plan. As of December 7, 2021, we had repurchased approximately 70,000 shares for~~make such repurchases) at an ~~aggregate~~average price of ~~approximately $2.8 million.~~$37.19 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

ITEM 4. MINE SAFETY DISCLOSURES (not applicable)

ITEM 5. OTHER INFORMATION

~~None~~On August 18, 2022, the Company filed a Current Report on Form 8-K including the announcement that its board of directors promoted David H. Watson to be the Company’s President and Chief Executive Officer (“CEO”) and appointed him to the board, effective August 16, 2022. Mr. Watson previously served as the Company’s Senior Vice President, Chief Financial Officer, Treasurer and Corporate Secretary (“CFO”) since October 2015.

Mr. Watson replaces Rainer H. Bosselmann, who retired from the CEO and Chairman of the Board positions but will continue to serve as a member of the board. Mr. Bosselmann has entered into a retirement agreement with the Company, effective August 16, 2022, that allows for payment of $225,000 per annum and benefits for three years.

The board appointed a current member of the board, William F. Leimkuhler, as Chairman of the Board, effective August 16, 2022.

The Company also announced that the board promoted Richard H. Deily to the position of CFO effective August 16, 2022. Mr. Deily was hired by the Company in October 2007 and previously served the Company as its Vice President, Corporate Controller, since January 2015.

ITEM 6. EXHIBITS


Exhibit No.		Title
Exhibit 10.1		Retirement Agreement, dated as of August 16, 2022, by and between Argan, Inc. and Rainer H. Bosselmann. Incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on August 18, 2022.
Exhibit 10.2		Employment Agreement, dated September 8, 2022, by and between Argan, Inc. and David H. Watson. Incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on September 8, 2022.
Exhibit 10.3		Employment Agreement, dated September 8, 2022, by and between Argan, Inc. and Richard H. Deily. Incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report on Form 10-Q filed on September 8, 2022.
Exhibit 31.1		Certification of Chief Executive Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
Exhibit 31.2		Certification of Chief Financial Officer, pursuant to Rule 13a-14(c) under the Securities Exchange Act of 1934.
Exhibit 32.1		Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350. *
Exhibit 32.2		Certification of Chief Financial Officer, pursuant to 18 U.S.C. Section 1350. *

Exhibit 101: Exhibit 101.INS		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
Exhibit 101.SCH		Inline XBRL Taxonomy Extension Schema.
Exhibit 101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase.
Exhibit 101.LAB		Inline XBRL Taxonomy Label Linkbase.
Exhibit 101.PRE		Inline XBRL Taxonomy Presentation Linkbase.
Exhibit 101.DEF		Inline XBRLTaxonomy Extension Definition Document.
Exhibit 104		Cover Page Interactive Data File – the cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

*	The certification is being furnished and shall not be considered filed as part of this report.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	ARGAN, INC.

December ~~8, 2021~~	~~By:~~	~~/s/ Rainer H. Bosselmann~~
		~~Rainer H. Bosselmann~~
		~~Chairman of the Board and Chief Executive Officer~~

~~December 8, 2021~~7, 2022	By:	/s/ David H. Watson
		David H. Watson
		President and Chief Executive Officer

December 7, 2022	By:	/s/ Richard H. Deily
		Richard H. Deily
		Senior Vice President, Chief Financial Officer,
		Treasurer and Corporate Secretary

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