AGX Argan Inc - 10-K

ITEM 1A. RISK FACTORS.

Our business is challenged by a changing environment that involves many known and unknown risks and uncertainties. The risks described below discuss factors that have affected and/or could affect us in the future. There may be others. We may be affected by risks that are currently unknown to us or are immaterial at this time. If any such events did occur, our business, financial condition and results of operations could be adversely affected in a material manner. Our future results may also be impacted by other risk factors listed from time to time in our future filings with the SEC, including, but not limited to, our Annual Reports on Form 10-K and our Quarterly Reports on Form 10-Q. As the most significant portion of our consolidated entity is represented by the Power segment, the risk factor discussions included below are focused on that business. However, as many of these same risks exist for our other reportable segments, the Industrial segment and the Teledata segment, a review and assessment of the following risk factors should be performed with those similarities in mind.

Risks Related to Our Business

Demand for our services may decrease during economic downturns or unpredictable economic cycles, which could affect our businesses adversely.

Substantial portions of the revenues and profits earned by our reportable business segments are generated from construction-type projects, the awarding and/or funding of which we do not directly control. The engineering and construction industry is subject to cyclical fluctuations due to economic conditions, project owners’ business cycles, labor and materials constraints, subcontractor pricing, interest rate changes, and regulatory or political developments.

During periods of reduced economic activity, customers may delay, reduce, or cancel projects, including new construction, maintenance, repairs, and outage work. In addition, adverse industry conditions may reduce our customers’ ability or willingness to fund capital expenditures. These conditions could result in delays, reductions, or cancellations of projects that are important to our business and future results.

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Future revenues are dependent on the awards of utility-scale natural gas-fired and renewable energy EPC projects to us, the receipt of corresponding full notices-to-proceed, and our ability to successfully complete the projects that we start.

Most of our consolidated revenues are generated by the Power segment, which represented 80.1%, 79.3% and 72.6% of consolidated revenues for Fiscal 2026, Fiscal 2025 and Fiscal 2024, respectively. The Power segment earns most of its revenues from long-term natural gas-fired EPC services contracts. In addition, a significant portion of our consolidated revenues in any given year may be derived from a limited number of customers, and customer concentration may vary from year to year .

Contracts may be delayed or canceled after award, and project commencement is often subject to receipt of a notice to proceed. Failure to secure future EPC project awards, obtain notices to proceed, or successfully complete awarded projects could adversely affect our future revenues, profitability, and cash flows.

Our financial results may fluctuate due to the timing of large construction projects.

Our Power segment performs work on a limited number of large construction projects during any given fiscal reporting period. Revenue for these projects is generally recognized over time based on progress toward completion, which is often measured using costs incurred. The timing of equipment purchases, subcontractor services, and other project activities may vary over the life of a contract, which can result in fluctuations in quarterly or annual revenues and operating results. In addition, the timing of project commencements and completions may contribute to variability in reported results between periods. As a result, our consolidated revenues, cash flows from operations, net income and earnings per share may vary from period to period.

Actual results could differ from the assumptions and estimates used to prepare our consolidated financial statements.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures.

For fixed-price customer contracts, we recognize revenues over time based on the proportion of costs incurred to date relative to total estimated costs. We review and update estimated costs monthly. Contract results may also be affected by estimates related to change orders and the resolution of contract disputes. Changes in contract values or estimated costs may result in cumulative catch-up adjustments to revenue and profit, which could be material. Actual contract values and costs may differ from estimates, which could reduce or reverse previously recognized revenues and profits.

Among the other areas that could require significant estimates by our management are the following:

the assessment of the value of goodwill and recoverability of other intangible assets;

the determination of provisions for income taxes, the accounting for uncertain income tax positions and the establishment of valuation allowances associated with deferred income tax assets;

the determination of the fair value of stock-based incentive awards;

the determination of the allowance for doubtful accounts; and

accruals for estimated liabilities, including any losses related to legal matters.

Our actual business and financial results could differ from our estimates, which may impact future profits.

Project backlog amounts may be uncertain indicators of future revenues as project realization may be subject to unexpected adjustments, delays and cancellations.

Project cancellations or scope modifications may occur that could reduce the amount of our project backlog and the associated revenues and profits that we earn. Our projects generally provide our customers with the right to terminate existing contracts unilaterally at their convenience as long as they compensate us for work already completed and compensate us for the additional costs incurred by us to terminate corresponding subcontracts, terminate equipment orders, and demobilize and vacate construction sites. These costs would most likely be meaningful. Should any unexpected delay, suspension or termination of the work under such projects occur, our results of operations may be materially and adversely affected. Although we believe that the customer commitments represented by project backlog are firm, we cannot guarantee that amounts in project backlog will be recognized as future revenues or will result in profitable operating results.

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Unsuccessful efforts to develop energy plant projects could result in write-offs and the loss of future business.

The development of a power plant construction project is expensive. The developers of power projects may form single purpose entities, such as limited liability companies, limited partnerships or joint ventures, to perform the development activities, which are typically funded by external sources. Periodically, we provide financial support to new projects during their development phase to improve their viability and enhance our likelihood of securing the EPC contract for power plant construction. While some of these initiatives have yielded positive results and success fees, others have not, resulting in the write-off of loan and interest balances and the loss of potential construction projects.

Future bonding requirements may adversely affect our ability to compete for certain projects.

Our construction contracts frequently require payment and/or performance bonds from surety companies as a condition of contract award. Although we have historically maintained sufficient bonding capacity, sureties typically issue bonds on a project-by-project basis and may require additional collateral or adjust bonding terms. Changes in market conditions, our financial position, project size, or a surety’s assessment of risk could affect the availability or cost of bonding. If bonding capacity were to become more limited, we could seek bonding from other surety providers, pursue joint ventures, increase work with clients that do not require bonds, or provide other forms of project security, such as letters of credit or cash. However, if adequate bonding or alternative arrangements were not available, our ability to compete for certain projects could be affected.

Our results could be adversely affected by natural disasters, human-made disasters or other catastrophic events.

Natural disasters, such as hurricanes, tornadoes, blizzards, floods and other adverse weather conditions; or other catastrophic events such as fires, public health crises, pandemics, geopolitical conflicts, terrorism and civil disturbances could disrupt our operations or the operations of one or more of our vendors or customers. These types of events could shut down our construction job sites or fabrication facility for indefinite periods of time, disrupt our product supply chain or could cause our customers to delay or cancel projects. To the extent any of these events occur, our operations and financial results could be adversely affected.

Geopolitical conflicts and related global disruptions may also adversely affect energy markets and supply chains. For example, the war in Ukraine and other international conflicts have contributed to volatility in global energy supply and pricing, increased transportation costs, shipping disruptions, and delays in the delivery of materials and equipment. In addition, escalation of military conflict involving Iran could disrupt global oil and liquefied natural gas (“LNG”) markets, including potential impacts to shipping through key transit routes. These conditions may increase project costs, delay schedules, or reduce demand for certain projects.

Although our contracts with certain customers include provisions intended to provide limited relief from some of these risks, the effectiveness of such protection may depend on factors outside our control, including the financial condition of our customers. The ultimate impact of natural disasters, human-made disasters, or other catastrophic events depends on the severity, duration, and geographic scope of the event, as well as its effects on customers, supply chains, labor availability, and broader economic conditions. Any of these factors could adversely affect our business, financial condition, and results of operations.

Disruptions or unfavorable changes in power market economics, including reductions in spark spreads or changes in capacity market pricing, could reduce demand for new power generation projects in certain regions.

Historically, a portion of our EPC business has been driven by the development of utility-scale power generation projects. In many regions, the economic viability of new generation projects depends on the expected margin between wholesale electricity prices and the cost of fuel and operations, commonly referred to as the spark spread. In certain wholesale markets, project economics may depend in part on revenues from capacity markets that compensate power generators for maintaining available capacity to support grid reliability. Declines in spark spreads resulting from lower power prices, higher fuel costs, or other market conditions, as well as decreases in capacity market prices or changes to capacity market rules that reduce expected revenues, could reduce the expected returns on new power generation projects and discourage or delay project development. If fewer projects are developed in regions important to our business, our revenues, profitability, and cash flows could be adversely affected.

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Artificial intelligence poses risks that could adversely affect our business, financial condition, and results of operations.

We may use artificial intelligence, machine learning, and similar technologies (“AI”), including AI-enabled features in third-party products, to support our business processes. Although our current use of AI is limited, we may expand our use of these technologies over time.

AI creates data security, confidentiality, and privacy risks. Unauthorized or improper use of AI tools by employees, vendors, or third parties could result in the disclosure of sensitive or proprietary information, including customer information, pricing, contract terms, and other confidential business data. In addition, we may have limited control over how third-party AI tools process, store, or protect data, even where contractual protections are in place. AI-related laws, regulations, and contractual requirements are evolving and may impose additional compliance costs, restrict our use of AI, or expose us to regulatory investigations, litigation, or liability. Any of these risks could adversely affect our business, financial condition, and results of operations.

Finally, our competitors may adopt and implement AI technologies more effectively or rapidly than we do, potentially giving them a competitive advantage. If we are unable to adopt and integrate AI tools in a cost-effective and timely manner, our business, financial condition, and results of operations could be materially and adversely affected.

Risks Related to Our Market

If the price of natural gas increases or becomes more volatile, the demand for our construction services could decline.

A significant portion of our power construction business has historically been supported by the development of combined-cycle natural gas-fired power plants. The economics of these projects, and the willingness of developers and lenders to finance them, are sensitive to natural gas prices and related market expectations. If natural gas prices increase or become more volatile, developers may delay, reduce, or cancel new natural gas-fired generation projects or may be unable to obtain construction or permanent financing on acceptable terms.

Natural gas prices may be affected by a variety of factors, including changes in domestic supply and demand dynamics, increased U.S. LNG exports, and regulatory developments affecting natural gas production. A significant portion of U.S. natural gas supply is produced using hydraulic fracturing and horizontal drilling, which remain subject to evolving federal, state, and local regulation and public opposition. If these or other factors limit natural gas production or increase price volatility, the economic attractiveness of natural gas-fired power plants could decline. Any reduction in the development of new natural gas-fired power plants could reduce demand for our EPC services and adversely affect our revenues, profitability, and cash flows.

Soft demand for electrical power may cause deterioration in our financial outlook.

Forecasts generally indicate a significant increase in electricity demand in the United States for the foreseeable future, driven largely by the expansion in the number of data centers, the increase in electric vehicle sales, and the onshoring of manufacturing facilities. We believe that these trends have resulted in increased demand for our EPC contract services. However, future softness in the demand for electrical power in the U.S. could result in the delay, curtailment or cancellation of future gas-fired power plant projects, thus decreasing the overall demand for our EPC services and adversely impacting the financial outlook for our Power business.

Intense global competition for engineering, procurement, and construction contracts could reduce our market share.

The EPC market for utility-scale power generation projects is highly competitive and subject to changes in participant strategies over time. While certain competitors have reduced their participation in this market or limited their willingness to enter fixed-price contracts, other competitors remain well-capitalized and have significant personnel, equipment, and operating scale. In addition, as utilities and developers pursue new generation capacity, additional firms may re-enter or expand their participation in the market.

Our ability to compete effectively depends on factors including financial strength, access to skilled labor and equipment, execution performance, and the effective use of technology. Competitive pressures may require us to accept lower margins, assume greater contractual risk, or offer more favorable terms to customers. If we are unable to compete successfully and win new projects on acceptable terms, we could lose market share, experience reduced revenues and profitability, or incur losses on individual projects.

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Changes in electricity generation resource mix could affect demand for new natural gas-fired power plant projects.

Electricity generation from utility-scale renewable resources, including solar and wind, continues to increase in the United States. This growth has been supported by regulatory and policy initiatives, tax incentives, declining technology and storage costs, and increasing energy storage capacity. As a result, utilities and developers may place greater emphasis on renewable and storage solutions when planning future generation capacity. If the development of renewable energy and energy storage accelerates faster than anticipated, or if power markets shift away from baseload generation toward alternative generation or peak-load solutions, the number or size of new natural gas-fired power plant projects could decline. Any such reduction in demand could adversely affect our future revenues, profitability, and cash flow.

Unexpected changes in the foreign countries in which we operate could result in project disruptions, increased costs and potential losses.

A portion of our business is conducted outside the United States, primarily in Ireland and the U.K. Our international operations are subject to economic, political, regulatory, and social conditions that may change rapidly and are outside our control. These risks include:

changes in government policies, laws, regulations, treaties, or leadership;

embargoes or other trade restrictions, including sanctions;

restrictions on the movement of currency or capital;

tax or tariff increases;

currency exchange rate fluctuations;

changes in labor conditions and difficulties in staffing and managing overseas operations; and

other social, political and economic instability.

Our level of exposure to these risks will vary for each significant project we perform overseas, depending on the location and the stage of the project. To the extent that our international business is affected by unexpected and adverse foreign economic changes, including trade retaliation from certain countries, we may experience project disruptions and losses which could significantly reduce our consolidated revenues and profits, or could cause losses reflected at the consolidated level.

Risks Related to the Regulatory Environment

We are required to comply with environmental laws and regulations that may add unforeseen costs to our businesses.

Our operations are subject to compliance with federal, state and local environmental laws and regulations, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by hazardous substances. Certain environmental laws impose substantial penalties for non-compliance and others impose strict, retroactive, and joint and several liability upon persons responsible for releases of hazardous substances. Compliance obligations and enforcement priorities may change over time, and compliance costs could increase and adversely affect our results of operations.

In addition, regulations and stakeholder expectations relating to greenhouse gas emissions disclosures and sustainability reporting are evolving and vary by jurisdiction. In the jurisdictions we operate, governments and regulatory bodies vary in their support of or opposition to sustainability matters, leading to rapid shifts in reporting obligations. New or expanded reporting requirements, including those adopted or proposed in the U.S., the European Union, and certain states, may require us to collect additional data, enhance internal controls, obtain third-party assurance, and devote significant management time and resources. These requirements may also be subject to legal, regulatory, or political changes that create uncertainty and additional compliance burdens.

Compliance with and monitoring of these evolving requirements may increase our costs, require significant resource allocation, and divert management’s attention from other operational and financial priorities.

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Changes in U.S. trade policy, including the imposition of tariffs, could increase our costs, disrupt supply chains, and reduce demand for construction projects.

Changes in U.S. trade policy, including the imposition or expansion of tariffs, trade restrictions, export controls, or other regulatory measures affecting imports or international supply chains, could increase the cost or reduce the availability of materials, equipment, and components used in our projects. Such measures may also result in import delays, longer lead times, or supply chain disruptions. Responding to changes in trade policies and supply chain conditions may also require increased management attention and result in additional administrative costs.

Higher costs or supply constraints could increase project costs or affect project schedules. Although our contracts may include provisions that address certain changes in project costs or inputs, such provisions may not fully mitigate the effects of tariffs, supply disruptions, or other trade-related developments. In addition, uncertainty regarding trade policies or global supply conditions may cause customers to delay, reduce, or cancel planned construction projects. If these conditions occur, our business, financial condition, and results of operations could be adversely affected.

Delays or failures in obtaining required regulatory approvals, including permits, interconnection agreements, and pipeline approvals, could delay or prevent energy projects and adversely affect our results.

The commencement and execution of projects performed by our Power segment depend on obtaining numerous regulatory approvals, including environmental, construction, and operating permits. These approvals may be delayed, challenged, or denied due to regulatory review public opposition, litigation, or other factors outside our control. In addition, projects may be delayed or terminated if developers are unable to secure timely interconnection agreements with transmission organizations. The development of new natural gas-fired power plants may also depend on the availability of fuel supply, which in some cases requires the construction of new natural gas pipelines. Delays, opposition, or legal challenges affecting pipeline projects could further delay or prevent the development of power plants.

If required approvals are not obtained, or are delayed beyond expected timelines, construction projects may be postponed or canceled, which could adversely affect our revenues, profitability, and cash flows.

Risks Related to Our Operational Execution

We may experience reduced profits or incur losses under fixed-price contracts if costs increase above estimates.

A significant portion of our work is performed under long-term, fixed-price contracts. The prices for these contracts are based on our estimates of project costs, schedules, labor productivity, and other assumptions. If our estimates are inaccurate, or if we are unable to complete projects within agreed cost and schedule parameters, we may experience cost overruns that are not recoverable from customers, which could reduce profitability or result in losses. Cost overruns or delays could also harm our reputation and reduce future business opportunities.

Factors that may contribute to contract cost overruns, delays, or other execution issues include:

inflation, specifically increases in the cost of labor, materials, components, equipment, warranties, or subcontractor services;

labor availability and productivity;

supply chain disruptions and delivery delays;

technical, engineering, or design issues;

poor workmanship;

weather and other force majeure events;

project changes; and

the effectiveness of our project controls and forecasting tools.

If we are unable to accurately estimate, manage, and control costs and schedules on fixed-price contracts, our business, financial condition, and results of operations could be adversely affected.

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Our continued success depends on our ability to attract, hire and retain talented personnel.

Our future success depends in part on our ability to attract, develop, retain and motivate experienced management and other skilled personnel, particularly project leadership. Our operations require a highly skilled workforce with specialized experience. Competition for qualified personnel may be intense, and there can be no assurance that we will be successful in maintaining experienced management teams or an adequately skilled workforce to execute our long-term construction contracts successfully and to support our future growth strategy. The loss of key personnel, the inability to complete management transitions without significant loss of effectiveness, or the inability to hire and retain qualified employees in the future could negatively impact our ability to manage our business in the future.

The shortage of skilled craft labor may negatively impact our ability to execute on our long-term construction contracts.

Increased infrastructure spending and general economic expansion may increase the demand for employees with the types of skills needed for the completion of our projects. There is a risk that our construction project schedules become unachievable or that labor expenses will increase unexpectedly due to a shortage in the available supply of skilled personnel. Increased labor costs may influence our customers’ decisions regarding the feasibility or scheduling of specific projects, potentially leading to delays or cancellations that could materially affect our business adversely. Labor shortages, productivity decreases or increased labor costs could impair our ability to maintain our business or grow our revenues. In general, we have been effective in staffing our projects with the necessary resources and managing labor costs. However, the inability to hire and retain qualified skilled employees in the future, including workers in the construction crafts, could negatively impact our ability to complete our long-term construction contracts successfully.

If we guarantee the timely completion or the performance of a project, we could incur additional costs to fulfill such obligations.

In certain of our fixed-price long-term contracts, we guarantee that we will complete a project by a scheduled date. Sometimes, we commit that the project, when completed, will also achieve certain performance standards. Subsequently, we may fail to complete the project on time or equipment that we install may not meet guaranteed performance standards. In those cases, we may be held responsible for costs incurred by the customer resulting from any delay or any modification to the plant made for the purpose of achieving the performance standards, generally in the form of contractually agreed-upon liquidated damages or obligations to re-perform substandard work. If we are required to pay such costs, the total costs of the project could exceed our original estimate, and we could experience reduced profits or a loss related to the applicable project.

We may be involved in litigation, liability claims, and contract disputes which could reduce our profits and cash flows.

We construct large and complex energy facilities, where design, construction, or systems failures could result in personal injury, property damage, or other losses. In addition, the nature of our business may result in contract disputes and claims by project owners, subcontractors, and vendors, including claims relating to costs, schedule delays, workmanship, change orders, withheld retention or contract payments, offsets, or contract termination. We have been, and may in the future be, named as a defendant in legal proceedings, including matters arising in the ordinary course of business (see Item 3, Legal Proceedings). In addition, from time to time, we and/or certain of our current or former directors, officers or employees could be named as parties to other types of lawsuits.

Litigation and dispute resolution can involve complex factual and legal issues, may continue for extended periods, and can be costly and time-consuming. Claims may result in significant damages, settlement payments, or other remedies, and even when we prevail, these matters may divert management attention and harm our reputation.

We maintain insurance coverage for certain risks; however, coverage may be unavailable for some exposures, may be subject to deductibles, exclusions, and self-insured retentions, and may be insufficient to cover all losses. In addition, certain risks, including environmental and pollution-related exposures, may not be fully insurable. Any material uninsured loss, or loss in excess of insurance limits or reserves, could adversely affect our business, financial condition, results of operations, and cash flows.

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Our failure to recover adequately on contract variations submitted to project owners could have a material effect on our financial results.

We may submit contract variations to project owners for additional amounts exceeding the contract price or for amounts not included in the original contract price. Variations occur due to matters such as owner-caused delays or changes from the initial project scope, both of which may result in additional costs. At times, contract variation submissions can be the subject of lengthy negotiation, arbitration, or litigation proceedings, and it is difficult to accurately predict when these differences will be fully resolved. When these types of events occur and unresolved matters are pending, we have used existing liquidity to cover cost overruns pending their resolution. A failure to promptly recover on these types of customer submissions could have a negative impact on our revenues, liquidity and profitability in the future.

Our dependence upon third parties to perform portions of our work and supply materials and equipment could adversely affect our project performance and profitability.

We rely on subcontractors to perform portions of our construction work and on third-party manufacturers and suppliers to provide significant equipment and materials necessary to complete our projects. Many of these inputs are specialized and may be available only from a limited number of qualified sources. If we are unable to obtain qualified subcontractors, equipment, or materials when needed, our ability to perform projects on schedule and within budget could be adversely affected.

In addition, if the costs of subcontractors, equipment, or materials exceed our estimates, our gross profit may be reduced and we could incur losses, particularly on fixed-price contracts. If a subcontractor, supplier, or manufacturer fails to perform, deliver, or meet contractual requirements, we may be required to self-perform work or obtain substitute labor, materials, or equipment on an expedited basis or at higher cost, which could adversely affect project schedules and profitability.

Disputes with subcontractors, manufacturers, or suppliers regarding scope, performance, or payment may result in arbitration or litigation and could increase costs. In addition, if subcontractors fail to pay their lower-tier subcontractors, suppliers, or employees, liens may be asserted against our projects, which could require us to incur additional costs to resolve the liens or pursue legal remedies.

Any of these events could adversely affect our business, results of operations, and cash flows.

Failure to maintain safe work sites could result in significant losses as we work on projects that are inherently dangerous.

Our project sites can place our employees and others near large and/or mechanized equipment, high voltage electrical equipment, moving vehicles, dangerous processes or highly regulated materials, and in challenging environments. Consequently, safety is a primary focus of our business and is critical to our reputation. Many of our customers require that we meet certain safety criteria to be eligible to bid on contracts. Further, regulatory changes implemented by OSHA or similar government agencies could impose additional costs on us. We maintain programs with the primary purpose of implementing effective health, safety and environmental procedures throughout our company. If we fail to implement appropriate safety procedures and/or if our procedures fail, our employees or others may suffer injuries or illness. The failure to comply with such procedures, client contracts or applicable regulations could subject us to losses and liability, and could adversely impact our ability to complete awarded projects as planned, obtain projects in the future, or recruit and retain qualified craft labor.

Work stoppages, union negotiations and other labor problems could adversely affect us.

The performance of certain large-scale construction contracts may result in our hiring of employees in the U.S. and overseas who are represented by labor unions. We make sincere efforts to maintain favorable relationships and conduct good-faith negotiations with union officials. However, there can be no assurances that such efforts will eliminate the possibilities of unfavorable conflicts in the future. A lengthy strike or the occurrence of other work disputes, slowdowns or stoppages at any of our current or future construction project sites could have an adverse effect on us, resulting in cost overruns, schedule delays or even lawsuits that could be significant. In addition, labor incidents could result in negative publicity for us thereby damaging our business reputation and perhaps harming our prospects for the receipt of future construction contract awards in certain locales.

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Future acquisitions or investments may not occur, and any acquisitions we complete may not be successfully integrated, which could limit our growth and adversely affect our results.

We may pursue opportunistic acquisitions or strategic investments to support growth, expand capabilities, or create synergies with our existing businesses. However, suitable acquisition targets may be difficult to identify, negotiations may be protracted or unsuccessful, and due diligence may identify issues that prevent us from completing transactions on acceptable terms, or at all. As a result, we may be unable to complete acquisitions or investments that support our growth strategy.

The timing, size, and financing of any future acquisitions are uncertain. Potential transactions may require the use of cash, equity, or a combination of both. The use of cash could reduce our financial flexibility, and our ability to raise additional capital may depend on market conditions, our operating results, and other factors outside our control. Our ability to use equity as consideration may be limited by the market price and liquidity of our common stock and the willingness of sellers to accept it. If adequate financing or acceptable consideration is not available, we may be unable to pursue attractive opportunities.

Even when acquisitions are completed, we may not achieve the anticipated benefits, including expected growth, margins, or synergies. Integrating acquired businesses may involve significant risks, including diversion of management attention, difficulty retaining key personnel, the discovery of previously unknown liabilities or project costs, challenges integrating systems and controls, and impairment of goodwill or other intangible assets.

In addition, we may determine that it is in our best interest to divest certain businesses. We may be unable to complete divestitures on acceptable terms or within desired timeframes, and any such transactions could result in losses.

Failure to successfully execute acquisitions, integrations, or divestitures could adversely affect our business, financial condition, results of operations, and reputation.

Our failure to protect our management information systems against security breaches could adversely affect our business and results of operations.

Our information systems are subject to the risk of unauthorized access, cyberattacks, phishing, malware, malicious code, system intrusions and other security incidents, including attempts to access or misuse our confidential and proprietary information and that of our customers, business partners and other third parties. Methods used to obtain unauthorized access evolve rapidly, and the increasing use of artificial intelligence has introduced additional cybersecurity risks that may be difficult to anticipate or mitigate. A successful security breach could result in the misappropriation of assets or information, manipulation of data, or damage to, or disruption of, our systems.

We rely heavily on computer, information, and communications technology and related systems, some of which are hosted or supported by third-party service providers. Disruptions in system availability, whether due to cybersecurity incidents, third-party failures or other causes, could delay or prevent the performance of critical business operations. While we maintain safeguards designed to protect the availability and security of our information technology systems, these measures may not be sufficient, and we may be required to expend significant additional resources to prevent, detect, respond to or remediate cybersecurity incidents.

We are subject to privacy and data protection laws and regulations in the United States and internationally, including the General Data Protection Regulation (“GDPR”) in the European Union, as well as contractual obligations requiring the protection of confidential and proprietary information. Although we have implemented security measures and technologies intended to protect sensitive information and support regulatory compliance, these measures may not prevent all security incidents. Any failure, or perceived failure, to comply with applicable laws, regulations or contractual obligations could result in litigation, regulatory investigations, fines, penalties or reputational harm.

While we do not operate in the high-technology sector and do not maintain large volumes of sensitive personal data, we maintain significant cash balances, which may make us a target for social engineering schemes, business email compromise, or other fraud. We maintain various insurance coverages intended to limit financial loss from these risks; however, such insurance may not cover all types of losses or may be insufficient to cover the full extent of any loss incurred.

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As previously disclosed, we were the target of a complex criminal scheme in Fiscal 2024 that resulted in fraudulently-induced outbound wire transfers to a third-party account (see Note 17 to the accompanying consolidated financial statements). Although we are not aware of any other material cybersecurity incidents, we may be subject to future attacks or security breaches. Any such incident could adversely affect our reputation, business relationships, financial condition, results of operations or cash flows.

Changes in tax laws or tax rates could increase our tax expense.

We are subject to income taxes in the U.S. and in foreign jurisdictions. Changes in tax laws, tax treaties or regulations, or in their interpretation or enforcement, in any jurisdiction where we operate could increase our effective tax rate, increase our tax liabilities, or increase our costs of tax compliance.

Certain of our tax positions may be successfully challenged by tax authorities which could result in additional income tax expense.

The determination of our worldwide provision for income taxes requires significant judgment and involves the application of complex tax laws and regulations. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related appeals, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our global mix of earnings, the realization of deferred tax assets, changes in uncertain tax positions, and changes in our tax strategies.

The examination of our income tax returns by tax authorities, or the resolution of any related appeals, could result in adjustments to income taxes previously recorded or paid. Any such adjustments could have a material adverse effect on our net earnings and cash flows from operations. See Note 12 to the accompanying consolidated financial statements for a discussion of our income tax examinations.

Violations of the Foreign Corrupt Practices Act or similar anti-bribery laws may harm our business.

The U.S. Foreign Corrupt Practices Act, the U.K. Bribery Act of 2010 and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from making improper payments to officials or others for the purpose of obtaining or retaining business. We maintain policies, procedures and internal controls designed to promote compliance with these laws. However, we cannot provide assurance that our controls and procedures will prevent violations by our employees or by third parties acting on our behalf, including partners, subcontractors or suppliers.

If we are found to be liable for anti-bribery law violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others including our partners, subcontractors or suppliers), we could suffer from criminal or civil penalties or other sanctions, including contract cancellations or debarment, and damage to our reputation, any of which could have a material adverse effect on our business. Litigation or investigations relating to alleged or suspected violations of anti-bribery laws, even if such litigation or investigations demonstrate ultimately that we did not violate anti-bribery laws, could be costly, and could divert management’s attention away from other aspects of our business.

Risks Related to an Investment in Our Securities

Our acquisition strategy may result in dilution to our stockholders.

We may make future acquisitions of other businesses that require the use of cash, issuances of common stock, and/or debt financing. Stock issuances and financing, if obtained, may not be on terms favorable to us and could result in substantial dilution to our stockholders at the time(s) of these transactions.

Future restricted stock issuances and stock option exercises will dilute the ownership of the Company’s current stockholders.

We award restricted stock units and stock options to directors, executives, and other key employees. The number of shares of our common stock that will ultimately be issued in connection with the restricted stock unit awards is not known. Any issuance will result in the dilution of the stock ownership of current stockholders. Additionally, future exercises of options to purchase shares of common stock at prices below prevailing market prices will result in ownership dilution for current stockholders.

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Our officers, directors and certain unaffiliated stockholders may have meaningful control over the Company.

As of January 31, 2026, our executive officers and directors as a group directly owned approximately 2.7% of our voting shares. In addition, as of December 31, 2025, two other stockholders beneficially owned, in the aggregate, approximately 12.2% of our shares. As a result, these stockholders may be able to influence corporate actions such as the election of directors, amendments to our certificate of incorporation, the consummation of any merger, the sale of all or substantially all of our assets, or other actions requiring stockholder approval.

We may not pay cash dividends in the future.

Our board of directors evaluates our ongoing operational and financial performance in order to determine what role strategically aligned dividends should play in creating shareholder value. We have paid regular and special cash dividends in the past. Since Fiscal 2019, we have paid quarterly cash dividends. There can be no assurance that the evaluations of our board of directors will result in the payment of regular or special cash dividends, or a change in the amounts of such dividends, in the future.

We may discontinue the repurchase of our common stock in the future.

Under our share repurchase program, our board of directors has authorized us to repurchase shares of our common stock in the open market or through investment banking institutions, privately negotiated transactions, or direct purchases. We began to repurchase shares of our common stock in November 2021, and we have repurchased shares of our common stock during each fiscal year since then. The timing and amount of stock repurchase transactions depend on market and business conditions, applicable legal and credit requirements, and other corporate considerations. We have no obligation to repurchase any amount of our common stock under the share repurchase program. We could suspend, modify or discontinue our share repurchase program at any time, and we cannot guarantee that we will continue to make common stock repurchases up to the authorized amount.

Provisions of our certificate of incorporation and Delaware law could deter takeover attempts .

Provisions of our certificate of incorporation and Delaware law may delay, prevent, or complicate a merger, tender offer or proxy contest involving us. Among other things, our board of directors may issue up to 500,000 shares of our preferred stock and may determine the price, rights, preferences, privileges and restrictions, including voting and conversion rights, of these shares. The issuance of preferred stock by us could adversely affect the rights of holders of common stock by, among other factors, establishing dividend rights, liquidation rights and voting rights that are superior to the rights of the holders of the common stock. In addition, Delaware law limits transactions between us and other parties that acquire significant amounts of our stock without approval of our board of directors.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This section of our 2026 Annual Report may include projections, assumptions and beliefs that are intended to be “forward-looking statements.” They should be read while considering our cautionary statement regarding “forward-looking statements” presented at the beginning of this 2026 Annual Report. The following discussion summarizes the financial position of Argan, Inc. and its subsidiaries as of January 31, 2026, and the results of their operations for Fiscal 2026 and

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Fiscal 2025, and should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in Item 8 of this 2026 Annual Report.

Refer to “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended January 31, 2025, that was filed with the SEC on March 27, 2025, for a discussion of financial trends, variance drivers and other significant matters for Fiscal 2025 as compared with Fiscal 2024.

Overview

The Company is primarily a construction firm that conducts operations through its wholly-owned subsidiaries across three distinct reportable business segments.

Power : Our Power segment provides a full range of engineering, procurement, construction, commissioning, maintenance, project development and technical consulting services to the power generation market. The customers include primarily independent power producers, public utilities, power plant equipment suppliers and other commercial firms with significant power requirements. Customer projects are located in the U.S., Ireland and the U.K.

Industrial : Our Industrial segment provides field services supporting new plant construction and plant additions for industrial facilities primarily located in the Southeast region of the U.S. The segment also fabricates, delivers, and installs metal components, including piping systems and pressure vessels, and performs maintenance turnarounds, shutdowns, and emergency mobilizations.

Teledata : Our Teledata segment provides project management, construction, installation, maintenance, repair, and emergency response services across power distribution and information, communications, and data networks.  The segment’s customers include commercial and industrial organizations, as well as state and federal government agencies, primarily throughout the Mid-Atlantic region of the U.S.

Project Backlog

As of January 31, 2026 and 2025, our consolidated project backlog amount of $2.9 billion and $1.4 billion, respectively, consisted substantially of projects within our Power segment.

The amount of our project backlog reported at a point in time represents the expected revenues from the remaining work on projects where the scope is sufficiently defined and the contract value can be reasonably estimated. While the inclusion of contract values in project backlog involves management judgment based on the facts and circumstances, we typically include the value of the contract in project backlog upon receiving a notice to proceed from the project owner. In making the determination of project backlog, management may consider several factors, including terms of the contract, the degree of project financing and permitting, and historical experience with similar contracts. The start of new projects is primarily controlled by project owners and delays may occur that are beyond our control.

We are committed to the construction of state-of-the-art, natural gas-fired power plants, as important elements of our country’s electricity-generation mix now and in the future. We target natural gas-fired power plants, renewable energy plants, energy storage, and industrial construction opportunities in the U.S., and natural gas-fired power plants and biomass power plants in Ireland and the U.K. Our vision is to safely contribute to the construction of the energy infrastructure and state-of-the-art industrial facilities that are essential to future economic prosperity in the areas where we operate. We intend to realize this vision with motivated, creative, high-energy and customer-driven teams that are committed to delivering the best possible project results each and every time.

860 MW Thermal Project

In October 2025, we entered an EPC services contract and received the corresponding full notice to proceed (“FNTP”) for the construction of an approximately 860 MW natural gas-fired power plant located in the ERCOT market.  Construction began during the fourth quarter of Fiscal 2026, and the project has an expected completion date in calendar year 2028.

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1.4 GW Thermal Project

In October 2025, we received FNTP on an EPC services contract for a 1.4 GW combined-cycle natural gas-fired power plant in Ward County, Texas. Construction began during the fourth quarter of Fiscal 2026, and the project has an expected completion date in calendar year 2029.

170 MW Thermal Project

In July 2025, we entered an EPC services contract for the construction of a power plant with a planned electricity generation capacity of approximately 170 MW in County Meath, Ireland. Project activity commenced in the third quarter of Fiscal 2026. The project has an expected project completion date in calendar year 2028.

Sandow Lakes Power Station

In April 2025, we received a notice to proceed on an EPC services contract to build a 1.2 GW combined-cycle natural gas-fired power plant in Lee County, Texas. Project activity commenced in the second quarter of Fiscal 2026. The project has an expected completion date in calendar year 2028.

Tarbert Next Generation Power Station

In January 2025, we entered an EPC services contract to build an approximately 300 MW biofuel power plant located in County Kerry, Ireland. The Tarbert Next Generation Power Station will run on 100% sustainable biofuels, specifically hydrotreated vegetable oil. Project activity commenced in the first quarter of Fiscal 2026. The project has an expected completion date towards the end of calendar year 2027.

700 MW Combined-Cycle Project

In December 2024, we entered an EPC services contract and received the corresponding FNTP to build an approximately 700 MW combined-cycle natural gas-fired power plant located in the U.S. Project activity commenced in the fourth quarter of Fiscal 2025. Project completion is scheduled for calendar year 2028.

Louisiana LNG Facility

In June 2024, we entered a subcontract and received FNTP for the installation of five 90 MW gas turbines for the dedicated supply of power to a LNG facility in Louisiana. This project, led by our Power segment, was a collaboration with our Industrial segment. Project work was completed during the first half of Fiscal 2026.

405 MW Midwest Solar Project

In August 2024, we received FNTP on an EPC services contract to construct a utility-scale solar field in Illinois with the capacity to provide 405 MW of electrical power. Project completion is scheduled for Fiscal 2027.

Midwest Solar and Battery Projects

Between January and early May 2024, we received FNTPs for three state-of-the-art solar energy and battery energy storage facilities in Illinois. The three projects will cumulatively represent 160 MW of electrical power and 22 MW of energy storage. Two of these projects were completed in Fiscal 2025. Completion of the final project, which has experienced certain regulatory delays, is expected to occur within the first half of Fiscal 2027.

Trumbull Energy Center

In November 2022, we received FNTP related to an EPC services contract for the construction of a 950 MW combined-cycle natural gas-fired power plant in Lordstown, Ohio. Substantial completion of the project was reached during the fourth quarter of Fiscal 2026. Project completion is scheduled for the first half of Fiscal 2027.

Industrial Segment Project Backlog

As of January 31, 2026, our Industrial segment’s project backlog was approximately $253.0 million as compared to $53.2 million on January 31, 2025. During Fiscal 2026, the Industrial segment added contracts to its project backlog related to

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an automotive plant, data centers, an aluminum rolling and recycling facility, a water treatment plant, and facilities related to certain other industries.

Contract Termination

In prior fiscal years, our U.K subsidiary recognized an estimated contract loss related to an overseas project in the amount of approximately $13.4 million, of which $3.4 million was recorded during Fiscal 2025 and the remainder was recorded in Fiscal 2024. Our U.K subsidiary has significant billable receivables, unresolved contract variations and claims for extensions of time, among other issues, related to an overseas project (see Note 10 to the accompanying consolidated financial statements).

Market Outlook

Power Market Outlook

Electricity demand in the United States has increased to its highest levels in approximately two decades, driven by continued growth in data centers, increased electrification across transportation and industrial sectors, and ongoing onshoring of manufacturing activities. At the same time, a significant portion of the existing power generation fleet is aging or being retired, creating challenges for grid reliability as capacity additions struggle to keep pace with rising demand.

Grid operators have emphasized the need for additional dispatchable, reliable power sources to support system stability, particularly during periods of peak demand or reduced renewable output. These dynamics continue to influence investment decisions across the power generation sector. The timing and economics of power generation projects may also be influenced by evolving federal, state, and local regulatory requirements, permitting processes, and energy-related incentive programs, which can affect development schedules, financing, and project viability.

Natural gas remains the primary source of utility-scale electricity generation in the United States and continues to play a central role in maintaining grid reliability. The retirement of coal-fired facilities, combined with the efficiency, flexibility, and lower emissions profile of modern combined-cycle and simple-cycle gas plants, has supported sustained demand for natural gas-fired generation.

The pace of new gas-fired power plant development faces certain challenges, including equipment supply constraints, the limited number of EPC contractors, interconnection delays, evolving regulatory requirements, and financing considerations. In addition, long-term clean energy and decarbonization goals adopted by various jurisdictions may influence development timelines. However, recent actions by grid operators and state governments highlight a growing recognition of the importance of dispatchable generation in supporting reliability. Programs designed to incentivize new power capacity, including gas-fired facilities, reflect this focus. We believe that the operating efficiency, fuel availability, and operational flexibility of natural gas-fired power plants position them to remain a critical component of the U.S. generation mix, particularly as a complement to renewable energy resources.

Utility-scale solar generation and battery storage capacity continue to grow in the United States, supported by declining technology costs, advancements in energy storage, and available incentives. Battery storage, in particular, has become increasingly important in addressing the intermittency of renewable generation and enhancing grid flexibility. While renewable capacity additions are expected to continue, these resources typically require firm, dispatchable generation to ensure reliability. As a result, renewable energy development often requires natural gas-fired generation and energy storage solutions to support system balance and performance.

Behind-the-meter ("BTM") generation is becoming more prevalent among commercial and industrial customers, particularly data center developers facing tight timelines and interconnection constraints. As BTM resources expand alongside renewables, grid operators may require additional flexible dispatchable generation to maintain reliability, which could support continued demand for natural gas-fired power plants.

Nuclear energy may influence future generation capacity additions, with industry focus increasingly shifting toward small modular reactors ("SMRs") given the extended timelines, regulatory complexity, and high capital costs associated with

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conventional nuclear development. While interest in nuclear has grown due to its minimal carbon footprint, meaningful new capacity is generally not expected at scale for several years.

Our domestic operations of our Power segment historically has represented the predominant portion of our power-related revenues. However, overseas power markets may continue to provide important new power construction opportunities, particularly in Ireland and the United Kingdom. Both markets are pursuing ambitious renewable energy objectives while also emphasizing the need for flexible, dispatchable generation and grid-supporting technologies to maintain reliability as renewable penetration increases. In Ireland, energy policy continues to support the development of additional generation and grid support resources, including natural gas-fired generation, battery storage, and other technologies intended to enhance security of supply. In the U.K., energy policy continues to evolve, with ongoing efforts to expand renewable generation while recognizing the role of flexible conventional generation and grid infrastructure in supporting system reliability. We continue to pursue selective construction opportunities in these markets consistent with our experience in power generation and related infrastructure.

Across many of these markets, the demand for new power generation capacity and related infrastructure is occurring at a pace that exceeds the industry’s ability to construct new facilities in the near term. A limited number of experienced EPC contractors, along with constraints in specialized labor, major equipment manufacturing capacity, and project development timelines, have created a supply-constrained environment for large-scale power generation construction. As a result, project developers and utilities often rely on a relatively small group of contractors with demonstrated experience in the engineering and construction of large-scale power generation facilities.

We believe these market dynamics have contributed to a strong pipeline of project opportunities. Our backlog growth in recent periods reflects these conditions and the continued demand for experienced contractors capable of executing complex power generation projects. However, the timing and extent of future project awards remain subject to a variety of factors, including regulatory developments, financing conditions, permitting timelines, equipment availability, and broader economic conditions, any of which could affect the pace at which new power generation projects move forward.

Industrial Market Outlook

Industrial field services typically represent most of the revenues within our Industrial segment, with the remaining revenues derived primarily from metal fabrication projects. While the Industrial segment has executed projects across the U.S., its core operating footprint is concentrated in the Southeastern U.S., a region that continues to attract industrial investment due to favorable business climates, established transportation infrastructure, access to modern seaports, and supportive state and local economic development programs.

Demand for industrial construction services in this region continues to be driven by increased manufacturing investment, infrastructure upgrades, data center development, biotechnology and life sciences projects, energy storage deployment, and clean water and environmental initiatives. In addition, ongoing domestic manufacturing expansion, digital infrastructure investment, and supply chain realignment have supported construction activity across a range of industrial end markets, creating opportunities for large-scale, complex construction projects aligned with the Industrial segment’s capabilities.

While the industrial construction market continues to face headwinds such as rising labor costs, skilled labor availability constraints, and supply chain volatility, near-term activity levels are expected to remain supported by continued investment in manufacturing, data centers, infrastructure, and energy-related facilities. We believe the Industrial segment’s geographic footprint, project execution experience, and ability to support industrial customers across multiple end markets position it to compete effectively for projects within its core regions.

Teledata Market Outlook

In regards to our Teledata segment, demand for telecommunications and technology infrastructure continues to grow as utilities, businesses, and public sector entities invest in network capacity, connectivity, and digital infrastructure. Increased data center development, expansion of broadband and fiber networks, deployment of IoT-enabled systems, and ongoing grid modernization initiatives are driving demand for outside plant and inside plant construction and technology wiring services. In addition, utilities and commercial customers continue to upgrade communications infrastructure to support advanced metering, distributed energy resources, and other digital grid technologies. These trends are expected to support continued demand for the services provided by our Teledata segment.

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Comparison of the Results of Operations for Fiscal 2026 and Fiscal 2025

The following schedule compares our operating results for Fiscal 2026 and Fiscal 2025 (dollars in thousands, except per share data):

Years Ended January 31,

$ Change

% Change

REVENUES

Power

Industrial

Teledata

Revenues

COST OF REVENUES

Power

Industrial

Teledata

Cost of revenues

GROSS PROFIT

Selling, general and administrative expenses

INCOME FROM OPERATIONS

Other income, net

INCOME BEFORE INCOME TAXES

Provision for income taxes

NET INCOME

DILUTED EARNINGS PER SHARE

NM – not meaningful

Revenues

Power Segment

The revenues of the Power segment increased by 9.2%, or $63.5 million, to $756.5 million for Fiscal 2026 compared with revenues of $693.0 million for Fiscal 2025. The increase was primarily attributable to increased construction activity for the 405 MW Midwest Solar Project, the 700 MW Combined-Cycle Project, and the commencement of several recently started gas-fired projects. The increase in revenues between years was partially offset by decreased construction activities associated with the Trumbull Energy Center, the Midwest Solar and Battery Projects, the Louisiana LNG Facility, the ESB FlexGen Peaker Plants, and the Shannonbridge Power Project, as those projects are in their later stages or have fully concluded. The revenues of this business represented approximately 80.1% of consolidated revenues for Fiscal 2026 and 79.3% of consolidated revenues for the prior fiscal year. The project backlog amounts for the Power reportable segment as of January 31, 2026 and 2025 were $2.7 billion and $1.3 billion, respectively.

Industrial Segment

The revenues of the Industrial segment were essentially flat at $167.6 million for Fiscal 2026 compared to $167.6 million for Fiscal 2025, as increased field services construction activities were largely offset by decreased supporting vessel fabrication work between periods. The revenues of this business represented approximately 17.7% of consolidated revenues for Fiscal 2026 and 19.2% of consolidated revenues for the prior fiscal year. The project backlog amounts for the Industrial segment as of January 31, 2026 and 2025 were $253.0 million and $53.2 million, respectively.

Teledata Segment

The revenues of the Teledata segment were $20.6 million for Fiscal 2026 compared with revenues of $13.5 million for Fiscal 2025. The project backlog amounts for the Teledata segment as of January 31, 2026 and 2025 were $8.4 million and $3.6 million, respectively.

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Cost of Revenues

Due primarily to the increase in consolidated revenues for Fiscal 2026 compared with revenues for Fiscal 2025, consolidated cost of revenues also increased. These costs were $750.9 million and $733.2 million for Fiscal 2026 and Fiscal 2025, respectively.

For Fiscal 2026, consolidated gross profit was $193.7 million, representing a gross profit percentage of approximately 20.5% of consolidated revenues, compared with $141.0 million, or approximately 16.1% of consolidated revenues, for Fiscal 2025. The increase in gross profit margin between periods was primarily attributable to the changing mix of projects and contract types. Our international operations experienced a significant improvement in profitability, reflecting strong execution and strategic discipline. In addition, disciplined execution on the Trumbull Energy Center reduced project costs and enabled us to achieve substantial completion ahead of schedule. The gross profit percentages of corresponding revenues for the Power, Industrial and Teledata segments for Fiscal 2026 were 22.4%, 12.1% and 19.5%, respectively. The gross profit percentages of corresponding revenues for the Power, Industrial and Teledata segments for Fiscal 2025 were 16.7%, 13.3% and 23.8%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were $59.0 million for Fiscal 2026 and $52.8 million for Fiscal 2025, representing 6.2% and 6.0% of consolidated revenues, respectively. The increase was primarily due to higher incentive and stock-based compensation.

Other Income, Net

For Fiscal 2026 and Fiscal 2025, the net amounts of other income were $25.8 million and $23.0 million, respectively, which primarily reflected income earned during the periods on investments, cash and cash equivalents.

Provision for Income Taxes

We recorded income tax expense for Fiscal 2026 in the net amount of approximately $22.7 million. Our annual effective income tax rate for Fiscal 2026 was 14.2%. This tax rate differed from the statutory federal tax rate of 21% due to the favorable effects of the windfall benefit from stock-based compensation and the change in valuation allowance for NOLs. Partially offsetting these benefits were the unfavorable effects of state income taxes and certain nondeductible expense amounts.

We recorded income tax expense for Fiscal 2025 in the net amount of approximately $25.7 million. Our annual effective income tax rate for Fiscal 2025 was 23.2%. This tax rate differed from the statutory federal tax rate of 21% due to the unfavorable effect of state income taxes and the unfavorable effects of certain nondeductible expense amounts. Partially offsetting these unfavorable effects were the investment tax credit effect recorded in Fiscal 2025 related to our solar fund investments and the windfall benefit from stock-based compensation.

Liquidity and Capital Resources

As of January 31, 2026 and 2025, our balances of cash and cash equivalents were $339.5 million and $145.3 million, respectively, which represented an increase of $194.2 million between years.

The net amount of cash provided by operating activities for Fiscal 2026 was $414.7 million. Our net income for Fiscal 2026, adjusted favorably by the net amount of non-cash income and expense items, represented a source of cash in the total amount of $157.3 million. The temporary increase in contract liabilities of $214.7 million represented a source of cash, primarily due to the net effect of the early phase of construction activities on certain projects. The decrease of accounts receivable in the amount of $42.3 million represented a source of cash during the period. The increase in the combined level of accounts payable and accrued expenses in the amount of $28.6 million represented a source of cash during the period as well. The increase in contract assets of $15.0 million and increase in other assets of $13.3 million represented uses of cash during the period.

For Fiscal 2026, we used $182.0 million for investing activities. During Fiscal 2026, we used $171.7 million, net of maturities, to invest in available-for-sale (“AFS”) securities consisting primarily of U.S. Treasury notes. We purchased $150.0 million of CDs issued by the Bank and maturities of $150.0 million during the period offset those purchases. We

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also used $11.5 million to fund our remaining capital contribution obligation to a solar energy project and $3.9 million for purchases of property, plant and equipment. Lastly, we received a $5.0 million repayment of a note receivable during the period.

For Fiscal 2026, we used $42.6 million for financing activities, including $24.3 million used for the payment of regular cash dividends and $9.9 million used to repurchase shares of common stock pursuant to our share repurchase program. We also used $8.4 million for share-based award settlements, which represented payments for withholding taxes reimbursed by shares of common stock, net of proceeds received from stock option exercises.  As of January 31, 2026, there were no restrictions with respect to intercompany payments among the holding company and our subsidiaries.

As of January 31, 2026, certain amounts of our cash equivalents were invested in money market funds with assets invested in cash, U.S. Treasury obligations, other obligations issued by U.S. Government agencies and sponsored enterprises, and repurchase agreements secured by such obligations. Most of our operating bank account balances are maintained with the Bank. We do maintain certain Euro-based bank accounts in Ireland and certain pound sterling-based bank accounts in the U.K. in support of our overseas operations.

To monitor the actual and necessary levels of liquidity for our business, we focus on working capital, or net liquidity, in addition to our cash balances. Our net liquidity increased by $119.6 million to $421.0 million as of January 31, 2026 from $301.4 million as of January 31, 2025, due primarily to our net income, partially offset by the payment of cash dividends, common stock repurchases, and settlements of share-based awards, net of withholding taxes paid. As we have no debt service, as our fixed asset acquisitions in a reporting period are typically low, and as our net liquidity includes our short-term investments and AFS investments, our levels of working capital are not subjected to the volatility that affects our levels of cash and cash equivalents.

We believe that cash on hand, our cash equivalents, cash that will be provided from the maturities of short-term investments and other debt securities and cash generated from our future operations, with or without funds available under our 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.

Financing Arrangements

On May 24, 2024, we executed with the Bank the Credit Agreement with an expiration date of May 31, 2027. The Credit Agreement, which was amended on October 23, 2025, has a base lending commitment amount of $35.0 million and establishes the interest rate for revolving loans at SOFR plus 1.85%. In addition to the base commitment, the credit facility includes an accordion feature that allows for an additional commitment amount of $30.0 million, subject to certain conditions. We may use the borrowing ability to cover other credit instruments issued by the Bank for our use in the ordinary course of business as defined in the Credit Agreement. Further, on May 31, 2024, we entered a companion facility, in the amount of $25.0 million, pursuant to which an overseas subsidiary of the Company may cause the Bank’s European entity to issue letters of credit on its behalf that are secured by a blanket parent company guarantee issued by Argan to the Bank.

As of January 31, 2026 and 2025, we did not have any borrowings outstanding under the Credit Agreement. However, the Bank has issued a letter of credit in the total outstanding amount of $0.3 million as of January 31, 2026. As of January 31, 2025, there were no outstanding letters of credit issued under the credit facilities.

We have pledged most of the Company’s assets to secure its financing arrangements. The Bank’s consent is not required for acquisitions, divestitures, cash dividends or significant investments if certain conditions are met. The Credit Agreement requires that we comply with certain financial covenants at our fiscal year-end and at each fiscal quarter-end. The Credit Agreement includes other terms, covenants and events of default that are customary for a credit facility of its size and nature, including a requirement to achieve positive adjusted earnings before interest, taxes, depreciation and amortization, as defined, over each rolling twelve-month measurement period. As of January 31, 2026, we were in compliance with the covenants and other requirements of the Credit Agreement.

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Contractual Obligations

During Fiscal 2026, there was no significant change in the nature or amounts of our contractual obligations. We estimate that the balance of such contractual obligations as of January 31, 2026, was less than $20.0 million. The largest items in this estimate, operating leases and contractual and deferred compensation, are amounts included as liabilities in our consolidated balance sheet. The remainder of such obligations relate primarily to open service arrangements. Outstanding commitments represented by open purchase orders and subcontracts related to our construction contracts have not been included in the estimated amounts of contractual obligations as such amounts are expected to be funded through past or future contract billings to customers. We do not have any significant obligations for materials or subcontracted services beyond those required to complete construction contracts awarded to us.

Performance Bonds and Guarantees

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) to provide performance assurances to clients on behalf of one of our subsidiaries.

If our services performed under a guaranteed project would not be completed, or if it 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 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.

As of January 31, 2026, the estimated amount of our unsatisfied bonded performance obligations of all our subsidiaries was approximately $0.5 billion. In addition, as of January 31, 2026, the outstanding amount of bonds covering other risks, including warranty obligations and contract payment retentions related to completed activities, was $44.7 million.

When sufficient information about claims related to 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 our 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 January 31, 2026 are not estimable.

Solar Energy Project Investments

We make investments in limited liability companies that make equity investments in solar energy projects that are eligible to receive energy tax credits, for which we have received substantially all the income tax benefits associated with those investments.

In Fiscal 2024, we invested $5.1 million in a solar tax credit entity and paid an additional $3.3 million in early Fiscal 2025 to satisfy our remaining capital commitment. Later in Fiscal 2025, we entered an investment opportunity in an additional solar tax credit entity, where we contributed $13.0 million in Fiscal 2025, followed by $11.5 million of remaining contributions in Fiscal 2026. As of January 31, 2026, we had no remaining cash investment commitments related to the solar tax credit entities. It is likely that we will evaluate opportunities to make other alternative energy project investments in the future.

Development Financing

We selectively participate in power plant project development and related financing activities. As is common in our industry, EPC contractors and third parties periodically form joint ventures, limited partnerships and limited liability companies for purposes of executing a project or program for a project owner. These special purpose entities are typically dissolved upon completion of the project or program.

We have agreed to support arrangements with independent project developers, primarily by providing development financing to special purpose entities formed to advance natural gas-fired power plant projects. Several of these arrangements have resulted in our successful construction of gas-fired power plants. In each case, we received project development fees, and our loans were repaid in full plus interest and fees. Not all such business development endeavors are successful, and we have recorded impairment losses as a result in the past.

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In Fiscal 2025, we funded a loan to a special purpose entity in the amount of $5.0 million to support the development phase of a natural gas-fired power plant. During Fiscal 2026, the loan was repaid in full.

We may enter other support arrangements in the future in connection with power plant development opportunities when they arise and when we are confident that providing early financial support for the projects will lead to the award of the corresponding EPC contracts to us.

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

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

However, as EBITDA is not a measure of performance calculated in accordance with U.S. GAAP, we do not believe that this measure should be considered in isolation from, or as a substitute for, the results of our operations presented in accordance with U.S. GAAP that are included in our 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.

The following table presents the determinations of EBITDA for Fiscal 2026 and Fiscal 2025, respectively (amounts in thousands).

Net income, as reported

Provision for income taxes

Depreciation

Amortization of intangible assets

EBITDA

Deferred Tax Assets and Liabilities

Our consolidated balance sheet as of January 31, 2026, includes net deferred tax liabilities in the amount of approximately $6.6 million. The components of our deferred taxes are presented in Note 12 to the accompanying consolidated financial statements. These amounts reflect differences in the periods in which certain transactions are recognized for financial and income tax reporting purposes.

We consider whether it is more likely than not that some portion or all deferred tax assets will not be realized on a jurisdiction-by-jurisdiction basis. Our ability to realize our deferred tax assets depends primarily upon the generation of sufficient future taxable income to allow for the realization of our deductible temporary differences. If such estimates and assumptions regarding income amounts change in the future, we may be required to record additional valuation allowances against some or all the deferred tax assets resulting in additional income tax expense in our consolidated statement of earnings.

As of January 31, 2026, we had deferred tax assets in a total amount of approximately $13.7 million related to the net operating loss (“NOL”) of our foreign subsidiaries, primarily the operations of our U.K. subsidiary. Prior to Fiscal 2024, we had reserved a portion of the deferred tax assets related to these NOLs. As a result of the unexpected difficulties with an overseas project and the loss that was recorded by our U.K. subsidiary, we increased the amount of the allowance by $2.1 million in Fiscal 2024. During Fiscal 2025, we increase the valuation allowance by $1.4 million related to additional operating losses incurred by our U.K. subsidiary during the fiscal year. As of January 31, 2026, the deferred tax assets associated with the NOLs of our U.K. subsidiary remain fully offset by a valuation allowance.

During the year ended January 31, 2020 (“Fiscal 2020”), we recorded a deferred tax asset associated with the income tax benefit of our domestic NOL for the year without any corresponding valuation allowance. The tax changes enacted by the Coronavirus, Aid, Relief and Economic Security Act signed into law in March 2020 (the “CARES Act”) included re-

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establishing a carryback period for certain losses to five years. The NOLs eligible for carryback under the CARES Act included the Company’s domestic loss for Fiscal 2020. In accordance with the provisions of the CARES Act, we filed for income tax refunds totaling approximately $12.7 million during the year ended January 31, 2021, for taxes paid in prior years. These amounts are included in income tax refunds receivable along with related accrued interest. The refund claims were primarily generated by a bad debt deduction recorded during Fiscal 2020. This deduction was selected for examination by the Internal Revenue Service (“IRS”). In January 2026, the IRS concluded its examination and proposed no changes to our Fiscal 2020 federal income tax return.

At this time, we believe that our historically strong earnings performance will provide sufficient income during the years when most of our other deferred tax assets become deductible in the U.S. for us to realize the applicable temporary income tax differences. Accordingly, we believe that it is more likely than not that we will realize the benefit of significantly all our net deferred tax assets.

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 dates 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 to be most critical to the understanding of our financial position and results of operations.

Revenue Recognition

Our revenues are primarily derived from construction contracts that can span several quarters or years. We enter EPC and other long-term construction contracts principally based on competitive bids or in conjunction with our support of the development of power plant projects. The types of contracts may vary. However, the EPC contracts of our Power reporting segment, and most other large contracts awarded to our other companies, are often fixed-price contracts. Revenues are recognized primarily over time as performance obligations are satisfied due to the continuous transfer of control to the project owner or other customer. The accuracy of our revenues and profit recognition in any period depends on the accuracy of our estimates of the forecasted contract value, or transaction price, and the cost to complete the work for each project.

The accounting for revenues from contracts with customers is based on a five-step revenue recognition 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 guidance focuses on the transfer of the control of the goods and/or services to the customer, as opposed to the transfer of risk and rewards. Major provisions cover the determination of which goods and services are distinct and represent separate performance obligations, the appropriate treatment of variable consideration, and the evaluation of whether revenues should be recognized at a point in time or over time. In general, application of the rules requires us to make important judgments and meaningful estimates that may have significant impact on the amounts of revenues recognized by us for any reporting period.

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. The cost and profit estimates

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are re-forecasted monthly for all significant contracts pursuant to a detailed determination and review process. The results of the process are subjected to reviews by senior management with the applicable project management personnel at each subsidiary. The depth of the reviews may vary between projects depending on the percentage-of-completion for the projects, among other factors. The cost-to-cost method measures the ratio of costs incurred and accrued to date for each contract to the estimated, or forecasted, total cost for each contract at completion. This requires us to prepare on-going estimates of the forecasted cost to complete each contract as the project progresses. In preparing these estimates, we make significant judgments and assumptions about our significant costs, including materials, labor and equipment, and we evaluate contingencies based on possible schedule variances, major equipment delivery delays, construction delays, weather or other productivity factors.

Actual costs may vary from the costs we estimate. Variations from estimated contract costs, along with other risks inherent in fixed-price contracts, may result in actual revenues and gross profits differing from those we estimate and could result in losses on projects or other significant unfavorable impacts on our operating results for any fiscal quarter or year. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined, without regard to the percentage of completion. There are various factors that can contribute to changes in estimated contract costs, revenues and profitability.

Crucial to the compliance with the accounting standard covering the recognition of revenues on contracts with customers is the identification of the promises made to the customer by us that are included in the contract. If a promise is distinct, as that concept is defined in the accounting standard, it represents a separate performance obligation. Contracts may have multiple promises. The amounts of revenue associated with each promise are recognized when, or as, the performance obligations are satisfied. However, complex contracts may include only one performance obligation if the multiple promises are not distinct within the context of the contract. For example, if the promises that could be considered distinct are interrelated or require us to perform integration so that the customer receives a complete product, the contract is considered to include only one performance obligation. Most of our long-term contracts have a single performance obligation as the promises to transfer individual goods or services are not separately identifiable from other promises within the context of the contract. Our EPC contracts require us to deliver a complete and functioning power plant, not just functioning components.

The transaction price of a contract represents the value used to determine the amount of revenue 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 variations in the scope and price of contracts, claims, incentives and liquidated damages.

We may include an estimated amount of variable consideration in the transaction price to the extent it is probable that a significant reversal of cumulative revenues recognized on the particular contract will not occur when the uncertainty associated with the variable consideration is resolved. Our determination of the amount of variable consideration to be included in the transaction price of a particular contract is based largely on an assessment of the Company’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The effect of any revisions to the transaction price on the amount of previously recognized revenues that is due to the addition or reduction of variable consideration is recorded currently as an adjustment to revenues on a cumulative catch-up basis. If any amounts of variable consideration that are reflected in the transaction price of a contract are not resolved in our favor, there could be reductions in, or reversals of, previously recognized revenues. In most significant instances, modifications to our contracts do not represent the addition of new performance obligations.

Contract results may be impacted by estimates of the amounts of contract variations that we expect to receive. The effects of any resulting revisions to revenues and estimated costs can be determined at any time and they could be material. As of January 31, 2026 and 2025, the aggregate amounts of contract variations reflected in estimated transaction prices that were pending customer approval were $11.4 million and $8.0 million, respectively.

Most of our customer contracts include the right for customers to terminate contracts for convenience. The value of future work that companies are contractually obligated to perform pursuant to active customer contracts should not be included in the disclosure of remaining unsatisfied performance obligations (“RUPO”) when the corresponding contracts include termination for convenience clauses without substantial penalties accruing to the customers upon such terminations. In the application of this guidance, we assess whether the nature of the work being performed under contract is largely service-

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based and repetitive and should be considered a succession of one-month contracts for the duration of the identified term of the contract. Predominantly, our customers contract with us to construct assets, to fabricate materials or to perform emergency maintenance or outage services where we believe a substantial penalty or cost would be incurred upon a termination for convenience. We believe that in substantially all cases, there would be substantial costs incurred by a customer if it terminated a contract with us for convenience, including the costs of terminating subcontracts, canceling purchase orders, returning or otherwise disposing of delivered materials and equipment and restarting the effort with another contractor. Further, to the best of management’s knowledge, the Company has never had a customer terminate a material contract with us for convenience. Therefore, our disclosure of the value of RUPO on active customer contracts represents an amount based on contracts or orders received from customers that we believe are firm and where the parties are acting in accordance with their respective obligations (see Note 2 to the accompanying consolidated financial statements).

Our long-term contracts typically have schedule dates and other performance obligations that, if not achieved, could subject us to liquidated damages. These contract requirements generally relate to specified activities that must be completed by an established date or by achievement of a specified level of output or efficiency. Each contract defines the conditions under which a project owner may make a claim for liquidated damages. The amounts of liquidated damages owed to a project owner pursuant to the terms of a contract would represent reductions of the transaction price of the corresponding contract.

At the outset of each of our contracts, the potential amounts of liquidated damages typically are not subtracted from the transaction price as we believe that we have included activities in its contract plan, and have reflected the associated costs in our forecasts of completed contract costs, that will be effective in preventing such damages. Of course, circumstances may change as we fulfill the corresponding contract. The transaction price is reduced when we no longer consider it probable that a significant reversal of revenue will not occur upon resolution of the matter. In making these assessments, we consider potential liquidated damages, related costs, and any mitigating factors in estimating forecasted revenues and costs to complete.

Recently Issued Accounting Pronouncements

See Note 1 to the accompanying consolidated financial statement for discussion of recently issued accounting pronouncements.