Aegion Corporation Reports 2017 Second Quarter Financial Results

Company's strategic actions strengthen long-term outlook

ST. LOUIS, Aug. 01, 2017 (GLOBE NEWSWIRE) --

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  • Q2'17 diluted EPS were $0.33 compared to $0.10 in Q2'16. Adjusted (non-GAAP)1 Q2'17 diluted EPS were $0.33 compared to $0.23 in Q2'16.

  • Contract backlog at June 30, 2017 was $774 million, a $147 million increase above contract backlog at June 30, 2016, each excluding backlog for the large deepwater pipe coating and insulation project. New orders in 1H'17 increased 35 percent to $764 million compared to $567 million in the prior year period. 

  • Aegion's focus on strategic end markets resulted in the decision to divest the pipe coating and insulation business and exit all non-pipe related contract applications for the Tyfo® Fibrwrap® system in North America. Aegion will continue to participate in the North American civil structures market through third-party product sales and engineering support.

  • The Company's restructuring initiative is expected to generate annualized savings in excess of $15 million in 2018.

1 Adjusted (non-GAAP) results exclude certain charges related to the Company's restructuring efforts and acquisition-related expenses. The reconciliation of adjusted results can be found below.


Q2 2017 HIGHLIGHTS

  • Strong execution of the $134 million deepwater pipe coating and insulation project generated over $40 million in revenues and profits were ahead of expectations.

  • Awarded two related contracts, valued at approximately $35 million, in the Middle East for robotic interior pipe weld coatings. Over 75 percent of the value is for offshore activity planned in 2018 at margins in line with prior offshore projects.

  • Significant improvement in Energy Services' profitability after the 2016 Restructuring to focus on the West Coast downstream market for refinery maintenance services.

  • Cash flow from operating activities in Q2'17 provided $27 million versus $12 million provided in Q2'16.

"The actions announced today reflect our focus on Aegion's strategic end markets for municipal and midstream oil & gas pipelines and West Coast refinery services to deliver sustainable organic revenue and earnings growth.

"Execution issues in Australia and for cathodic protection services in the U.S. as well as limited backlog in Denmark and for the Tyfo® Fibrwrap® system in North America prevented much stronger results in Q2'17. We forecast solid 2H'17 performance due to increased backlog and actions to address these market and performance issues. However, we now expect 2017 adjusted EPS to moderately exceed 2016 results.

"We are committed to achieving our three-year financial targets and expect the strength of our end markets combined with the actions announced today to position us for significantly improved profitability in 2018."

Charles R. Gordon
Aegion President and Chief Executive Officer

STRATEGIC ACTIONS
Aegion's long-term organic growth strategy is premised on market-leading technologies in growing and predictable end markets. Aegion continuously reviews its portfolio and end markets. On July 28, 2017, its Board of Directors approved a plan to: (1) divest the Company's pipe coating and insulation business in Louisiana; (2) exit all non-pipe related contract applications for the Tyfo® Fibrwrap® system in North America; (3) restructure Corrosion Protection's operations in Canada; and (4) implement a cost reduction to right-size the Company as a result of these actions.

DIVEST CORROSION PROTECTION'S PIPE COATING AND INSULATION BUSINESS
The market is characterized by large new pipeline construction projects with long lead-times and high risk related to timing of awards and commencement of pipe coating and insulation activities. This market structure is inconsistent with the Company's objective for sustainable growth and Corrosion Protection's strategic focus on midstream oil & gas pipeline maintenance.

In order to assist the Company with the sale process, including discussions with third parties, the Company has retained Simmons & Company International, the energy specialists of Piper Jaffray, to serve as its financial adviser.

EXIT INFRASTRUCTURE SOLUTIONS' NORTH AMERICA ACTIVITY FOR NON-PRESSURE PIPE CONTRACT APPLICATIONS
Despite investments over the last two years to accelerate sales momentum in North America, efforts have failed to sufficiently expand contract applications for the Tyfo® Fibrwrap® system to strengthen buildings, bridges and other structures. The growing acceptance of fiber-reinforced polymer solutions support the strategy to focus solely on being a technology provider through expert structural engineering, direct product sales and installation technical support for buildings, bridges and other structures.

RESTRUCTURE CORROSION PROTECTION'S OPERATIONS IN CANADA
The ongoing challenges in the oil & gas market have resulted in continued pricing pressures and reduced customer spending. It is necessary to right-size the Company's Canadian operations for cathodic protection services based on expectations that current market conditions will continue.

IMPLEMENT A COST REDUCTION EFFORT ACROSS AEGION
These strategic actions require the proper level of operating and functional support structure, which requires adjustments to the Company's overhead structure.

RESTRUCTURING AND RELATED CHARGES
Management has initiated a restructuring plan to support the strategic actions noted above. Total annualized savings are currently estimated to be in excess of $15 million, which are expected to be fully realized in 2018.

To date, approximately $9 million of annualized savings have been identified. Estimated pre-tax, cash charges of $9 million to $11 million, with the majority of the charges planned for 2H'17, are required to achieve the identified savings. The anticipated charges consist primarily of employee severance, retention, extension of benefits, employment assistance programs, early lease termination and other restructuring related costs. A final determination of the remaining cost savings and the additional costs to achieve those savings is expected in the coming months.

As part of the repositioning within Infrastructure Solutions for the Tyfo® Fibrwrap® operations in North America, the Company will evaluate the long-lived assets and goodwill of the Fyfe reporting unit for impairment during the third quarter of 2017. As of June 30, 2017, the Fyfe reporting unit in North America had $56 million of long-lived assets and $56 million of goodwill. Any impairment charge and any corresponding operating expense reduction would be in addition to the pre-tax charges and savings noted above.

 

Selected Q2'17 Consolidated Financial Highlights

Quarter Ended June 30, 2017 Quarter Ended June 30, 2016
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Cost of revenues $ 274,705 $ 12 $ 274,717 $ 236,496 $ (2,373 ) $ 234,123
Gross profit 79,768 (12 ) 79,756 61,190 2,373 63,563
Operating expenses 58,109 (285 ) 57,824 50,806 (2,029 ) 48,777
Acquisition-related expenses 704 (704 )
Restructuring charges 1,535 (1,535 )
Operating income 21,659 273 21,932 8,145 6,641 14,786
Net income
(attributable to Aegion Corporation)
11,100 185 11,285 3,422 4,578 8,000
Diluted earnings per share $ 0.33 $ $ 0.33 $ 0.10 $ 0.13 $ 0.23

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 $(12) related to the write-off of certain other assets; and pre-tax restructuring charges for operating expenses of $285 primarily related to wind-down and other restructuring-related charges, net of the reversal of reserves for potentially uncollectible receivables. All restructuring charges relate to the 2014 Restructuring.

(2) 2016 Non-GAAP pre-tax adjustments:

  • Restructuring: Charges for cost of revenues of $10 related to the write-off of certain other assets; pre-tax restructuring charges for operating expenses of $2,029 related to wind-down and other restructuring-related charges; pre-tax restructuring charges of $1,535 related to employee severance, extension of benefits, employment assistance programs and early lease termination costs in accordance with ASC 420, Exit or Disposal Cost Obligations; and recorded as "Restructuring charges" in the Consolidated Statements of Operations; and pre-tax restructuring charges for other expense of $249 related to the release of cumulative currency translation adjustments. The vast majority of restructuring charges relate to the 2016 Restructuring.

    Acquisition-Related Expenses: Inventory step up expense of $2,363 for 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 $704 incurred in connection with the Company's acquisitions of Underground Solutions, selected assets of Fyfe Europe and the CIPP business of Leif M. Jensen A/S and other potential acquisition activity pursued by the Company during the quarter.

Selected Q2'17 Segment Financial Highlights

Infrastructure Solutions

Quarter Ended June 30, 2017 Quarter Ended June 30, 2016
(in thousands) As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(2)
As Adjusted
(Non-GAAP)
Revenues $ 148,311 $ $ 148,311 $ 150,199 $ $ 150,199
Cost of revenues 113,947 12 113,959 111,024 (2,314 ) 108,710
Gross profit 34,364 (12 ) 34,352 39,175 2,314 41,489
Gross profit margin 23.2 % 23.2 % 26.1 % 27.6 %
Operating expenses 25,973 (285 ) 25,688 24,776 (451 ) 24,325
Acquisition-related expenses 704 (704 )
Restructuring charges 628 (628 )
Operating income $ 8,391 $ 273 $ 8,664 $ 13,067 $ 4,097 $ 17,164
Operating margin 5.7 % 5.8 % 8.7 % 11.4 %

(1) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with the write-off of certain other assets, reversal of reserves for potentially uncollectible receivables, wind down and other restructuring charges.

(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; and (iii) acquisition expenses incurred primarily in connection with the Company's acquisition of Underground Solutions, selected assets of Fyfe Europe and the CIPP business of Leif M. Jensen A/S.

Corrosion Protection

Quarter Ended June 30, 2017 Quarter Ended June 30, 2016
(in thousands) As Reported
(GAAP)
Adjustments As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
Revenues $ 127,715 $ $ 127,715 $ 94,410 $ $ 94,410
Cost of revenues 92,079 92,079 77,307 (59 ) 77,248
Gross profit 35,636 35,636 17,103 59 17,162
Gross profit margin 27.9 % 27.9 % 18.1 % 18.2 %
Operating expenses 24,397 24,397 18,767 (93 ) 18,674
Restructuring charges 805 (805 )
Operating income (loss) $ 11,239 $ $ 11,239 $ (2,469 ) $ 957 $ (1,512 )
Operating margin 8.8 % 8.8 % (2.6 )% (1.6 )%

(1) 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

Quarter Ended June 30, 2017 Quarter Ended June 30, 2016
(in thousands) As Reported
(GAAP)
Adjustments As Adjusted
(Non-GAAP)
As Reported
(GAAP)
Adjustments
(1)
As Adjusted
(Non-GAAP)
Revenues $ 78,447 $ $ 78,447 $ 53,077 $ $ 53,077
Cost of revenues 68,679 68,679 48,165 48,165
Gross profit 9,768 9,768 4,912 4,912
Gross profit margin 12.5 % 12.5 % 9.3 % 9.3 %
Operating expenses 7,739 7,739 7,263 (1,485 ) 5,778
Restructuring charges 102 (102 )
Operating income (loss) $ 2,029 $ $ 2,029 $ (2,453 ) $ 1,587 $ (866 )
Operating margin 2.6 % 2.6 % (4.6 )% (1.6 )%

(1) Includes non-GAAP adjustments related to 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.

 

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.

About Non-GAAP Financial Measures

Aegion has presented certain information in this release excluding certain items that impacted income, expense and earnings per share from continuing operations. The adjusted earnings per share in the quarters and six-month periods ended June 30, 2017 and 2016 exclude charges related to the Company's restructuring efforts and acquisition-related activities.

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® and the associated logos are the registered trademarks of Aegion Corporation and its affiliates.

CONTACT:
Aegion Corporation
David A. Martin, Executive Vice President and Chief Financial Officer
(636) 530-8000