Aegion Corporation Reports 2018 Third Quarter Financial Results

Management now targeting adjusted EPS growth of 15% to 20% in 2018; Exiting multiple underperforming operations

ST. LOUIS, Oct. 30, 2018 (GLOBE NEWSWIRE) -- A PDF accompanying this announcement is available at 

http://resource.globenewswire.com/Resource/Download/7aaf9a72-2a6f-495f-bc45-b5c83cc5ffd0 

  • Q3’18 loss per diluted share was $0.01 compared to a loss per diluted share of $2.23 in Q3’17. Q3’18 adjusted (non-GAAP)1 earnings per diluted share were $0.45, up 43 percent from prior year earnings per diluted share of $0.32.

  • Adjusted operating income increased 26 percent to $25 million, resulting in a 160 basis point improvement in adjusted operating margin to 7.4 percent.

  • As part of the comprehensive portfolio review discussed in early August, management is announcing further restructuring initiatives, which primarily include the exit of multiple additional international operations not meeting the required long-term financial targets to deliver sustainable earnings growth. Cash costs associated with additional restructuring initiatives are estimated to be $8 to $10 million, with expected annualized savings of more than $5 million as well as the elimination of significant losses from underperforming international businesses over the last several years.

1Adjusted (non-GAAP) results exclude certain charges related to the Company’s restructuring activities, acquisition and divestiture-related expenses, goodwill impairment, definite-lived intangible asset impairment and impacts from the Tax Cuts and Jobs Act.  Reconciliation of adjusted results is included below.

Q3 2018 HIGHLIGHTS

  • Revenues were $340 million in Q3’18, down slightly from the prior year as strength in Energy Services and Corrosion Protection was offset by declines in Infrastructure Solutions due to an unfavorable project mix within North America CIPP operations.

  • Adjusted operating income growth of $5.2 million was primarily driven by significantly improved results from Corrosion Protection, due to strong execution on multiple coating projects.

  • Contract backlog as of September 30, 2018 was $671 million with new orders in the quarter of $298 million.  Ending backlog declined 12 percent from the prior year, primarily driven by reductions due to exited or to be exited businesses, work completed on the large Middle East coating projects and the roll off of two large Energy Services contracts expected to renew in Q4’18.  Adjusting for these items, backlog is on par with the prior year.

“Aegion delivered Q3’18 adjusted EPS sharply above the prior year, driven by ongoing improvements from restructured businesses and exceptional execution from our coating services business within Corrosion Protection. Partly offsetting this strength, Infrastructure Solutions was impacted unfavorably by project mix both in the quarter and at the bid table, and we've seen weaker than expected top-line growth in the cathodic protection business year to date. Reflecting these impacts, we now expect earnings growth in FY’18 to be 15 to 20 percent above FY’17 results. 

As we look to further streamline the company, we are exiting multiple additional international businesses. These operations, as well as Australia and Denmark, delivered combined revenues of less than 5 percent of Aegion's total, but with underperformance that has generated $5 million of adjusted pre-tax losses year to date, or $0.11 of adjusted diluted losses per share. We feel confident that exiting these businesses will drive improved focus on optimizing operations within our core markets to deliver organic growth in 2019 and beyond."

Charles R. Gordon, President and Chief Executive Officer

Selected Consolidated Financial Highlights

Quarter Ended September 30, 2018 Quarter Ended September 30, 2017
(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 $ 339,679 $ $ 339,679 $ 341,872 $ $ 341,872
Cost of revenues 267,006 (705 ) 266,301 268,430 268,430
Gross profit 72,673 705 73,378 73,442 73,442
Operating expenses 51,386 (3,018 ) 48,368 54,872 (1,258 ) 53,614
Goodwill impairment 1,389 (1,389 ) 45,390 (45,390 )
Definite-lived intangible asset impairment 870 (870 ) 41,032 (41,032 )
Acquisition and divestiture expenses 4,800 (4,800 ) 1,980 (1,980 )
Restructuring and related charges 1,219 (1,219 ) 5,439 (5,439 )
Operating income (loss) 13,009 12,001 25,010 (75,271 ) 95,099 19,828
Other income (expense) (9,281 ) 8,951 (330 ) (798 ) (798 )
Net income (loss)
(attributable to Aegion Corporation)
(447 ) 15,365 14,918 (73,498 ) 84,126 10,628
Diluted earnings (loss) per share $ (0.01 ) $ 0.46 $ 0.45 $ (2.23 ) $ 2.55 $ 0.32

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

(1)    Q3 2018 Non-GAAP pre-tax adjustments:

  • Restructuring: Charges for cost of revenues of $705 primarily related to inventory obsolescence; charges for operating expenses of $3,018 primarily related to wind-down expenses, reserves for potentially uncollectible receivables, fixed asset disposals and other restructuring-related charges; charges for goodwill and definite-lived intangible asset impairments of $1,389 and $870, respectively, related to the restructured operations in Denmark; charges of $1,219 related to employee severance, extension of benefits, employment assistance programs and early lease and contract termination costs; and charges for other expense of $222 related to the release of cumulative currency translation adjustments.

  • Acquisition and Divestiture Expenses: Expenses of $4,800 incurred in connection with the Company’s divestiture of Bayou, small acquisitions in both Corrosion Protection and Energy Services, and planned divestitures of the CIPP operations in Australia and Denmark; and an $8,729 loss on the divestiture of Bayou.

(2)  Q3 2018 Non-GAAP adjustments include $1,536 of income tax reversals resulting from the Tax Cuts and Jobs Act.

(3)  Q3 2017 Non-GAAP pre-tax adjustments:

  • Restructuring: Charges for operating expenses of $1,258 primarily related to wind-down and other restructuring-related charges; charges of $5,439 related to employee severance, extension of benefits, employment assistance programs and early lease and contract termination costs.

  • 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 $1,980 incurred in connection with the Company’s acquisition of Environmental Techniques and the Company’s planned divestiture of Bayou.

Selected Segment Financial Highlights

Infrastructure Solutions

Quarter Ended September 30, 2018 Quarter Ended September 30, 2017
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Revenues $ 155,681 $ $ 155,681 $ 174,161 $ $ 174,161
Cost of revenues 117,546 (138 ) 117,408 132,972 15 132,987
Gross profit 38,135 138 38,273 41,189 (15 ) 41,174
Gross profit margin 24.5 % 24.6 % 23.6 % 23.6 %
Operating expenses 24,078 (2,465 ) 21,613 25,284 (1,158 ) 24,126
Goodwill impairment 1,389 (1,389 ) 45,390 (45,390 )
Definite-lived intangible asset impairment 870 (870 ) 41,032 (41,032 )
Acquisition and divestiture expenses 216 (216 ) 118 (118 )
Restructuring and related charges 1,184 (1,184 ) 3,390 (3,390 )
Operating income (loss) $ 10,398 $ 6,262 $ 16,660 $ (74,025 ) $ 91,073 $ 17,048
Operating margin 6.7 % 10.7 % (42.5 )% 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, fixed asset disposals, goodwill and definite-lived intangible asset impairments and other restructuring charges; and (ii) expenses incurred in connection with the planned divestitures of the CIPP businesses in Australia and Denmark.

(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) 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.

Corrosion Protection

Quarter Ended September 30, 2018 Quarter Ended September 30, 2017
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Revenues $ 105,624 $ $ 105,624 $ 102,276 $ $ 102,276
Cost of revenues 79,213 (567 ) 78,646 79,213 (15 ) 79,198
Gross profit 26,411 567 26,978 23,063 15 23,078
Gross profit margin 25.0 % 25.5 % 22.5 % 22.6 %
Operating expenses 19,344 (553 ) 18,791 21,855 (100 ) 21,755
Acquisition and divestiture expenses 4,569 (4,569 ) 1,862 (1,862 )
Restructuring and related charges 35 (35 ) 2,049 (2,049 )
Operating income (loss) $ 2,463 $ 5,724 $ 8,187 $ (2,703 ) $ 4,026 $ 1,323
Operating margin 2.3 % 7.8 % (2.6 )% 1.3 %

(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, inventory obsolescence and other restructuring charges; and (ii) expenses incurred in connection with the acquisition of Hebna and divestiture of the Bayou business.

(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; and (ii) expenses incurred in connection with the planned disposal of the Bayou business.

Energy Services

Quarter Ended September 30, 2018 Quarter Ended September 30, 2017
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments As Adjusted
(Non-GAAP)
Revenues $ 78,374 $ $ 78,374 $ 65,435 $ $ 65,435
Cost of revenues 70,247 70,247 56,245 56,245
Gross profit 8,127 8,127 9,190 9,190
Gross profit margin 10.4 % 10.4 % 14.0 % 14.0 %
Operating expenses 7,964 7,964 7,733 7,733
Acquisition-related expenses 15 (15 )
Operating income $ 148 $ 15 $ 163 $ 1,457 $ $ 1,457
Operating margin 0.2 % 0.2 % 2.2 % 2.2 %

(1)  Includes non-GAAP adjustments related to expenses incurred in connection with the acquisition of Plant Performance Services, LLC.

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, 2017, filed with the Securities and Exchange Commission on March 1, 2018, 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 quarters and nine-month periods ended September 30, 2018 and 2017 exclude charges related to the Company’s restructuring efforts, acquisition and divestiture-related activities, credit facility amendment fees, goodwill impairment, definite-lived intangible asset impairment and impacts related to the Tax Cuts and Jobs Act.

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®, Fyfe®, and Tite Liner® 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 and Chief Financial Officer
(636) 530-8000