Aegion Corporation Reports 2017 Full Year and Fourth Quarter Financial Results

2018 adjusted earnings per share expected to increase more than 30 percent on market strength and improved execution

ST. LOUIS, Feb. 28, 2018 (GLOBE NEWSWIRE) --

A PDF accompanying this announcement is available at http://resource.globenewswire.com/Resource/Download/eb2af9eb-f507-40b7-99fe-b669ff411f5a

  • Revenues reached a record $1.36 billion in FY'17 compared to $1.22 billion in FY'16, an increase of 11 percent, driven by growth across all three segments.

  • FY'17 loss per diluted share was $2.08 compared to income of $0.84 per diluted share in FY'16. FY'17 adjusted (non-GAAP)1 earnings per diluted share were $1.03 compared to $1.10 in FY'16.

  • Adjusted operating income in FY'17 grew 9.9 percent compared to FY'16, driven by increases within Corrosion Protection, Energy Services and Infrastructure Solutions' North America CIPP businesses that were partly offset by losses within the restructured businesses.

  • New orders increased 20 percent in FY'17 to $1.36 billion. Contract backlog as of December 31, 2017 was $689.0 million, an increase of $96.2 million, or 16 percent, from contract backlog at December 31, 2016, each excluding backlog for the large deepwater pipe coating and insulation project, which was substantially completed during FY'17.

1Adjusted (non-GAAP) results exclude certain charges related to the Company's restructuring activities, goodwill and intangible asset impairments, acquisition and divestiture-related expenses, impacts from the Tax Cuts and Jobs Act, impacts from 2016 legal settlements and reversal of a contingency reserve.  Reconciliation of adjusted results is below.

2017 HIGHLIGHTS

  • Infrastructure Solutions set new records in FY'17 for both revenues of $612.2 million and new orders of $658.1 million. Strong top-line results were offset by nearly $16 million of adjusted losses, or $0.33 adjusted earnings per diluted share, from portions of the business subject to restructuring actions in Denmark, Australia and Fyfe North America.

  • Corrosion Protection delivered near record revenues of $456.1 million and a more than threefold increase in operating income in FY'17 compared to FY'16, driven by the successful execution of the large deepwater pipe coating and insulation project.

  • Energy Services revenues grew 17 percent and adjusted operating margin improved 160 basis points from FY'16 on growth across all revenue streams.

"Aegion's order intake growth across all three segments was a highlight of 2017. Resulting strong revenues and execution generated record contributions from the North America CIPP business and a marked turnaround at Energy Services. We also successfully completed the large deepwater pipe coating and insulation project. These results helped offset significant losses in the restructured businesses as well as execution challenges within our U.S. cathodic protection operations.

"Looking forward, we feel confident in the decisive actions we have taken to return troubled businesses to profitability in 2018. These efforts, combined with ongoing market strength and our backlog position, drive our favorable outlook for adjusted diluted earnings per share improvement of more than 30 percent in 2018."

Charles R. Gordon, President and Chief Executive Officer

STRATEGIC ACTIONS

  • In August 2017, the Company announced a series of strategic actions intended to generate more predictable and sustainable long-term earnings growth. Activity during 2017 included:

      •  Initiating a process to divest the Corrosion Protection's pipe coating and insulation business in Louisiana.

      •  Restructuring activities associated with the decision to exit the Infrastructure Solutions' North America activity for non-pressure pipe contracting applications of the Tyfo® system.

      •  Restructuring activities associated with realigning the Infrastructure Solutions' operations in Australia and Denmark.

      •  Restructuring activities associated with Corrosion Protection's operations in Canada, which also included downsizing activities reflecting current and anticipated market conditions.

      •  Implementation of other cost savings initiatives across the Company.

  • Total charges of $110.1 million were incurred in 2017 related to the above restructuring actions, which included cash charges of $13.7 million and a related impairment charge of $86 million. For 2017 and 2018, total restructuring and impairment charges are estimated to be between $115 and $120 million, with total cash charges of $19 to $21 million, most of which are expected to be completed before the end of 1H'18.

  • The Company expects the restructuring actions and other cost reduction initiatives to achieve annualized cost reductions in excess of $20 million. Cost reductions are partially offset by strategic investments made across the Company.

TAX CUTS AND JOBS ACT

Aegion has completed an initial assessment of the impact of the Tax Cuts and Jobs Act. The Company expects its 2018 effective tax rate will be between 23 and 24 percent. In the fourth quarter of 2017, the Company also recorded a provisional estimated net tax expense of $2.4 million, which consisted of a charge of $10.4 million for the deemed mandatory repatriation of undistributed foreign earnings, reduced by a $7.1 million release of a deferred tax liability on unremitted foreign earnings and $0.9 million of other reform-related impacts. This one-time charge was excluded from adjusted (non-GAAP) earnings per diluted share. The impacts of the legislation may differ materially from this estimate (and the amount of the provisional charge may be adjusted over the course of 2018) due to changes in interpretations and assumptions the Company has made, guidance that may be issued and actions the Company may take as a result of the tax legislation.

CREDIT FACILITY AMENDMENT

On February 27, 2018, the Company amended its existing Credit Facility to, among other items:

  • Extend the expiration date from October 2020 to February 2023;

  • Allow the sale of the Company's pipe coating and insulation business in Louisiana; and

  • Update the credit facility's defined terms to allow for the add-back of certain charges related to the 2017 Restructuring when calculating our compliance with financial covenants.

In the event of the sale of the Company's pipe coating and insulation business, the net cash proceeds are required to first be applied against any outstanding borrowings on the revolving line of credit. Additionally, upon such a sale, the aggregate principal amount of the revolving line of credit will be reduced from $300.0 million to $275.0 million.

In October 2017, the Company's board of directors authorized a program to repurchase up to $40.0 million of the Company's common stock in 2018 open market transactions. The recent credit facility amendment limits open market share repurchases to $30.0 million in 2018, with flexibility to increase levels to $40.0 million in 2019 and beyond, pursuant to further board of directors approval.

Selected FY'17 Consolidated Financial Highlights

Year Ended December 31, 2017 Year Ended December 31, 2016
(in thousands, except earnings per share) As Reported
(GAAP)
Adjustments
(1) (2)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(3)
As Adjusted
(Non-GAAP)
Revenues $ 1,359,019 $ $ 1,359,019 $ 1,221,920 $ $ 1,221,920
Cost of revenues 1,074,207 (156 ) 1,074,051 968,756 (3,905 ) 964,851
Gross profit 284,812 156 284,968 253,164 3,905 257,069
Operating expenses 225,826 (11,017 ) 214,809 197,099 (3,843 ) 193,256
Goodwill impairment 45,390 (45,390 )
Definite-lived intangible asset impairment 41,032 (41,032 )
Gain on litigation settlement (6,625 ) 6,625
Acquisition and divestiture expenses 2,923 (2,923 ) 2,696 (2,696 )
Restructuring and related charges 12,814 (12,814 ) 9,168 (9,168 )
Operating income (loss) (43,173 ) 113,332 70,159 50,826 12,987 63,813
Net income (loss)
(attributable to Aegion Corporation)
(69,054 ) 103,839 34,785 29,488 9,153 38,641
Diluted earnings (loss) per share $ (2.08 ) $ 3.11 $ 1.03 $ 0.84 $ 0.26 $ 1.10

Net income and diluted earnings per share includes non-controlling interest.

_________________________________
(1)    2017 Non-GAAP pre-tax adjustments:

  • Restructuring: Charges for cost of revenues of $156 primarily related to the write-off of certain other assets; charges for operating expenses of $11,017 primarily related to wind-down and other restructuring-related charges; and charges of $12,814 related to employee severance, extension of benefits, employment assistance programs and early lease and contract termination costs.  The vast majority of restructuring charges relate to the 2017 Restructuring.
  •  Impairment: Charges for goodwill impairment of $45,390 for the Fyfe reporting unit; and charges for definite-lived intangible asset impairment of $41,032 for Fyfe North America.
  • Acquisition and Divestiture Expenses: Expenses of $3,084 incurred in connection with the Company's acquisition of Environmental Techniques and the Company's planned divestiture of Bayou.

(2)  2017 Non-GAAP adjustments include $2,426 of additional income tax charges incurred as a result of the Tax Cuts and Jobs Act.

(3)  2016 Non-GAAP pre-tax adjustments:

  • Restructuring: Charges for cost of revenues of $333 related to the write-off of certain other assets; charges for operating expenses of $6,179 related to wind-down and other restructuring-related charges; charges of $9,168 related to employee severance, extension of benefits, employment assistance programs and early lease termination costs; and charges for other expense of $248 related to the release of cumulative currency translation adjustments.  The vast majority of restructuring charges relate to the 2016 Restructuring.
  • Acquisition-Related Expenses: Charges for inventory step up expense of $3,572 to cost of revenues recognized as part of the accounting for business combinations in connection with the Company's acquisition of Underground Solutions; and expenses of $2,696 related to costs incurred in connection with the Company's acquisitions of Underground Solutions, selected assets of Fyfe Europe, the CIPP business of Leif M. Jensen A/S and Concrete Solutions.
  • Litigation Settlement: $6,625 gain on settlement of two lawsuits related to the December 2012 departure of several key leaders in sales and operations for the Tyfo® Fibrwrap® technology.
  • Contingency Reserve: Reversal of a $2,336 contingency reserve established as part of the opening balance sheet for the acquisition of Brinderson L.P.

Selected FY'17 Segment Financial Highlights

Infrastructure Solutions

Year Ended December 31, 2017 Year Ended December 31, 2016
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Revenues $ 612,154 $ $ 612,154 $ 571,551 $ $ 571,551
Cost of revenues 471,331 (141 ) 471,190 429,870 (3,627 ) 426,243
Gross profit 140,823 141 140,964 141,681 3,627 145,308
Gross profit margin 23.0 % 23.0 % 24.8 % 25.4 %
Operating expenses 106,397 (8,769 ) 97,628 89,477 (260 ) 89,217
Goodwill impairment 45,390 (45,390 )
Definite-lived intangible asset impairment 41,032 (41,032 )
Gain on litigation settlement (6,625 ) 6,625
Acquisition and divestiture expenses 651 (651 ) 2,696 (2,696 )
Restructuring and related charges 9,160 (9,160 ) 2,630 (2,630 )
Operating income (loss) $ (61,807 ) $ 105,143 $ 43,336 $ 53,503 $ 2,588 $ 56,091
Operating margin (10.1 )% 7.1 % 9.4 % 9.8 %

(1) Includes non-GAAP adjustments related to: (i) pre-tax restructuring charges associated with severance and benefit related costs, early lease and contract termination costs and other restructuring charges; (ii) impairment charges to goodwill and definite-lived intangible assets related to the Fyfe reporting unit; and (iii) acquisition expenses incurred primarily in connection with the Company's acquisition of Environmental Techniques.

(2) Includes non-GAAP adjustments related to: (i) pre-tax restructuring charges associated with the write-off of certain other assets, severance and benefit related costs, and other restructuring charges; (ii) inventory step up expense recognized in connection with the Company's acquisition of Underground Solutions; (iii) gain on litigation settlement; and (iv) acquisition expenses incurred primarily in connection with the Company's acquisition of Underground Solutions, selected assets of Fyfe Europe, the CIPP business of Leif M. Jensen A/S and Concrete Solutions.

Corrosion Protection

Year Ended December 31, 2017 Year Ended December 31, 2016
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Revenues $ 456,139 $ $ 456,139 $ 401,469 $ $ 401,469
Cost of revenues 347,899 (15 ) 347,884 318,200 (278 ) 317,922
Gross profit 108,240 15 108,255 83,269 278 83,547
Gross profit margin 23.7 % 23.7 % 20.7 % 20.8 %
Operating expenses 89,877 (2,248 ) 87,629 77,657 (483 ) 77,174
Acquisition and divestiture expenses 2,272 (2,272 )
Restructuring and related charges 3,654 (3,654 ) 3,803 (3,803 )
Operating income (loss) $ 12,437 $ 8,189 $ 20,626 $ 1,809 $ 4,564 $ 6,373
Operating margin 2.7 % 4.5 % 0.5 % 1.6 %

(1) Includes non-GAAP adjustments related to: (i) pre-tax restructuring charges associated with severance and benefit related costs, early lease and contract termination costs and other restructuring charges; and (ii) expenses incurred in connection with the planned disposal of the Bayou business.

(2) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with the write-off of certain other assets, severance and benefit related costs, and other restructuring charges.

Energy Services

Year Ended December 31, 2017 Year Ended December 31, 2016
(in thousands) As Reported
(GAAP)
Adjustments As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
Revenues $ 290,726 $ $ 290,726 $ 248,900 $ $ 248,900
Cost of revenues 254,977 254,977 220,686 220,686
Gross profit 35,749 35,749 28,214 28,214
Gross profit margin 12.3 % 12.3 % 11.3 % 11.3 %
Operating expenses 29,552 29,552 29,965 (3,100 ) 26,865
Restructuring and related charges 2,735 (2,735 )
Operating income (loss) $ 6,197 $ $ 6,197 $ (4,486 ) $ 5,835 $ 1,349
Operating margin 2.1 % 2.1 % (1.8 )% 0.5 %

(1)  Includes non-GAAP adjustments related to: (i) pre-tax restructuring charges associated with the write-off of certain other assets, early lease termination costs, severance and benefit related costs, and other restructuring charges; and (ii) reversal of a contingency reserve established as part of the opening balance sheet for the acquisition of Brinderson L.P.

About Aegion (NASDAQ:AEGN)

Aegion combines innovative technologies with market-leading expertise to maintain, rehabilitate and strengthen infrastructure around the world. Since 1971, the Company has played a pioneering role in finding innovative solutions to rehabilitate aging infrastructure, primarily pipelines in the wastewater, water, energy, mining and refining industries. Aegion also maintains the efficient operation of refineries and other industrial facilities. Aegion is committed to Stronger. Safer. Infrastructure.®  More information about Aegion can be found at www.aegion.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Aegion's forward-looking statements in this news release represent its beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to Aegion and on management's beliefs, assumptions, estimates or projections and are not guarantees of future events or results. When used in this document, the words "anticipate," "estimate," "believe," "plan," "intend, "may," "will" and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. Such statements are subject to known and unknown risks, uncertainties and assumptions, including those referred to in the "Risk Factors" section of Aegion's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 1, 2017, and in subsequently filed documents. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, Aegion's actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, Aegion does not assume a duty to update forward-looking statements, whether as a result of new information, future events or otherwise. Investors should, however, review additional disclosures made by Aegion from time to time in Aegion's filings with the Securities and Exchange Commission. Please use caution and do not place reliance on forward-looking statements. All forward-looking statements made by Aegion in this news release are qualified by these cautionary statements. .

Information regarding the impact of the Tax Cuts and Jobs Act consists of preliminary estimates which are forward-looking statements and are subject to change, possibly materially. Information regarding the impacts of the Tax Cuts and Jobs Act is based on our current calculations, as well as our current interpretations, assumptions and expectations, which are subject to further change. 

About Non-GAAP Financial Measures

Aegion has presented certain information in this release excluding certain items that impacted income, expense and earnings per share. The adjusted earnings per share in the fourth quarters and years ended December 31, 2017 and 2016 exclude charges related to the Company's restructuring efforts, goodwill and intangible asset impairments, acquisition and divestiture-related activities, impacts from the Tax Cuts and Jobs Act, impacts from 2016 legal settlements and reversal of a contingency reserve.

Aegion management uses such non-GAAP information internally to evaluate financial performance for Aegion's operations because Aegion's management believes such non-GAAP information allows management to more accurately compare Aegion's ongoing performance across periods. As such, Aegion's management believes that providing non-GAAP financial information to Aegion's investors is useful because it allows investors to evaluate Aegion's performance using the same methodology and information used by Aegion management.

Aegion®, Fibrwrap®, Tyfo® and the associated logos are the registered trademarks of Aegion Corporation and its affiliates. (AEGN-ER)

CONTACT: Aegion Corporation
David F. Morris, Executive Vice President, General Counsel and Interim Chief Financial Officer

(636) 530-8000

Aegion Corporation

17988 Edison Avenue

St. Louis, MO 63005