EX-99.1 2 a2013q3earningsrelease-exh.htm EXHIBIT 2013 Q3 Earnings Release - Exhibit 99.1
EXHIBIT 99.1

AEGION CORPORATION REPORTS THIRD QUARTER 2013
NON-GAAP DILUTED EARNINGS PER SHARE FROM
CONTINUING OPERATIONS OF $0.44

•
North American Water and Wastewater third quarter operating income grew 64.2 percent year over year to $10.3 million. Operating margins expanded 270 basis points to 10.8 percent.

•
Energy and Mining third quarter non-GAAP1 operating income declined $6.3 million year-over-year to $15.1 million, including the impact of an earnout reversal in both periods.

•
International Water and Wastewater improved non-GAAP operating income by $2.5 million from the third quarter of 2012.

•
Commercial and Structural third quarter non-GAAP operating income declined $3.4 million year-over-year to a reported loss of $0.9 million.

•
Consolidated backlog as of September 30, 2013 was $714.6 million. North America Water and Wastewater backlog reached $241.7 million, a new anticipated record high. Brinderson backlog was an estimated $209.2 million based on next 12 months maintenance contract revenues and other signed contracts.

St. Louis, MO - October 29, 2013 - Aegion Corporation (Nasdaq Global Select Market: AEGN) today reported financial results for the third quarter and first nine months of 2013. Excluding one-time items defined as non-GAAP, net income from continuing operations in the third quarter totaled $17.0 million, or $0.44 per diluted share, compared to $20.4 million, or $0.51 per diluted share, in the prior year quarter. Net income from continuing operations for the first nine months of 2013 was $34.0 million, or $0.87 per diluted share, compared to net income of $41.0 million, or $1.04 per diluted share, in the first nine months of 2012.

J. Joseph Burgess, Aegion’s President and Chief Executive Officer, commented, “While our North American Water and Wastewater business performed exceptionally well in the third quarter, results from our Energy and Mining and Commercial and Structural businesses did not meet expectations. Each of our businesses will execute the schedule of project activity needed to deliver strong performance in the fourth quarter, while lower than expected results in the third quarter require a modest reduction in our full year non-GAAP diluted earnings per share guidance to $1.45 to $1.50, excluding the expected $0.08 to $0.10 per share contribution from Brinderson. Successful execution of our initiatives will give us the opportunity to end the year above this range.”


__________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________ 
1 Reconciliation of all GAAP to non-GAAP financial results in this release begins on page 13. Consolidated third quarter 2013 non-GAAP results exclude a $4.2 million pre-tax charge, or $0.06 per diluted share, for acquisition-related expenses and redemption of debt fees. The first nine months of 2013 contain non-GAAP net charges totaling $2.5 million, or $0.06 per diluted share, for (i) acquisition-related charges, (ii) a gain on the sale of the Company’s 50 percent interest in Insituform Rohrsanierungstechniken GmbH, (iii)redemption of debt fees and (iv) a non-cash write down of the Company’s investment in Bayou Coatings LLC.

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Fourth Quarter and Full Year Outlook

The outstanding third quarter performance by our North American Water and Wastewater business has provided momentum for the final quarter of the year. Although the potential for adverse weather late in the year could limit cured-in-place pipe installation activity, a record backlog of $242 million and the production schedule for October and November are positive signs that this business will be a key catalyst for Aegion’s performance in the fourth quarter, finishing 2013 with expected full year revenues of $345 to $350 million and operating margins in the range of 8 to 9 percent.

The general contractor for the Saudi Arabia Wasit gas field project once again altered the offshore schedule preventing CRTS from executing planned pipe weld coating activities in the third quarter. The revised schedule calls for the offshore installation of the 36-inch trunk pipelines to resume in November, nearly three months later than the previous plan. The result of this scheduling change is a reduction in the contribution from this project for the third and fourth quarters, shifting a majority of the remaining profit contribution into 2014. In the third quarter of 2013, Aegion recognized a $2.8 million reversal of the earnout as negotiated in the CRTS acquisition because of this delay. North America and the Middle East remain the primary Energy and Mining markets driving expected performance in the fourth quarter for United Pipeline Systems and Corrpro. The fourth quarter is traditionally a strong period for Bayou's Canadian pipe coating operations ahead of the winter construction season. Given the delay in the CRTS/Wasit project and soft market conditions in the Gulf of Mexico, South America, and Mexico, full year 2013 revenues for Energy and Mining will likely be in the range of $465 to $470 million with operating margins of 9 to 10 percent, excluding the contribution from Brinderson. Brinderson got off to a good start in the third quarter contributing $47.9 million in revenues and gross profit of $8.5 million. Brinderson has a strong backlog position for the fourth quarter supporting expectations for revenue contributions in the second half to be approximately $115 million at mid-teens gross margins.

The fourth quarter is expected to be the most profitable quarter for the International Water and Wastewater segment as the European business traditionally has a strong quarter to conclude the year and progress on several key projects in Australia and Malaysia supports an anticipated operating profit for the Asia-Pacific business - the first in several years. Full year 2013 outlook for the International Water and Wastewater segment is to deliver operating income in the $3 million to $4 million range for the European segment, while operating income in the Asia-Pacific region is expected to be a modest loss of approximately $1.0 million.

Commercial and Structural’s North America business struggled to build momentum in the US during the third quarter. There were four main reasons for this: (1) lower workable backlog at the beginning of the quarter from a stall in sales activity that is being addressed by the ongoing investment in our sales organization; (2) project performance issues from inadequate cost estimation on several key projects in late 2012; (3) customers are taking more time to finalize the award of new contracts and issuing work releases; and (4) certain delays in the setup of new projects in hand, which delayed project execution. Investments to enhance our sales organization are beginning to payoff as the bid table for near term opportunities approached $100 million at the end of the third quarter compared to $40 million at June 30, 2013. Our efforts to enhance the sales organization will continue in the coming months to properly resource and align the organization in its primary end markets: pipelines, buildings and transportation. The second phase of our strategic investments has been accelerated to institute best-in-class project management to ensure consistency in execution on all projects. Global backlog for Commercial and Structural was $48.2 million as of September 30, 2013. We expect a return to profitability in the fourth quarter.

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Mr. Burgess commented, “We’ve stated our intention since the acquisition of the Fyfe businesses to make the necessary investments to expand our leadership position in the rapidly growing global fiber-reinforced polymer market. Although these enhancements to our operations have taken more time to complete, we are committed to these markets and believe in their growth potential. The lower than expected results in the third quarter are expected to result in full year 2013 global Commercial and Structural revenues of between $75 to $80 million with gross margins of 35 to 40 percent. We expect a return to profitability in the fourth quarter and view 2014 as a year for Commercial and Structural to recover and grow from 2013. We believe this business can grow revenues 20 to 25 percent annually over the longer term and achieve gross margins in the range of 35 to 40 percent.”

“The foundation for our growth strategy is the sustainable end markets for our technologies and services in North America, the Middle East, South America and portions of Asia. The demand for energy remains favorable as does the outlook for commercial and industrial structural rehabilitation. We are well positioned in North America and Asia-Pacific for consistency and cash generation in the water and wastewater rehabilitation markets. Although we have not completed our 2014 budget planning process, our existing backlog for 2014 together with 2013 opportunities that have recently shifted into 2014 form a solid foundation for growth. Our expectation is to build on that foundation with prospects in our water and wastewater businesses, significant growth prospects for Brinderson and continued strength in strategic elements of our Energy and Mining platform, most notably Corrpro and United Pipeline Systems.”

Consolidated Highlights

Third Quarter 2013 versus Third Quarter 2012

Revenues increased $44.8 million, or 17.0 percent. Brinderson contributed $47.9 million in revenues in its first quarter as part of Aegion. North American Water and Wastewater revenues increased $18.2 million from increased volume across all geographies. Partially offsetting the increase was a $10.9 million decrease in revenues from our Bayou Coatings operations in New Iberia, Louisiana due to a lull in pipe coating project activity for the oil and gas market in the Gulf of Mexico. Revenues for United Pipeline Systems declined $9.7 million due to the near completion of the large Moroccan project begun last year and curtailment in capital and maintenance spending in the South American mining sector and the Mexican oil and gas market. Revenues for the Commercial and Structural platform were down $3.1 million due to lower workable backlog and customer driven project delays in North America and Asia.

Gross profit increased 10.3 percent, or $6.5 million, to $69.4 million. Brinderson contributed $8.5 million. North American Water and Waster increased gross profit by $4.2 million. The International Water and Wastewater segment increased gross profit by $2.2 million from improved project activity in Australia and Malaysia and a reduction in the 2012 losses in Singapore. United Pipeline Systems saw gross profit decline from the near completion of the large Moroccan project and a curtailment in market activity in Mexico and South America. The soft market conditions in 2013 for pipe coating activities supporting oil and gas development in the Gulf of Mexico had a negative impact on gross profit for Bayou in New Iberia, Louisiana as there was insufficient pipe volume to absorb plant fixed costs. Gross profit for the Commercial and Structural platform declined $3.3 million, primarily from challenges in North America. Consolidated gross margins declined by 130 basis points because of lower margin contribution from Brinderson, lower margins associated with the Moroccan project and a lack of higher margin projects from the prior year at Bayou and pipeline strengthening and rehabilitation projects for Commercial and Structural.


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Operating expenses increased $5.6 million, or 13.2 percent. Brinderson added $5.9 million to operating expense. United Pipeline Systems increased operating expense by $0.4 million to support international expansion and provide additional support to the Moroccan project. Corrpro realized cost savings from ongoing initiatives to enhance sales and operational efficiencies. North American Water and Wastewater operating expenses decreased significantly as a percent of revenue because of efficiency gains achieved over the last two years through project management along with operational and administrative realignment. Operating expenses in International Water and Wastewater have been steady as new investments to improve operational management have been offset by savings from the reduced operations in Singapore and realignment of operations in certain European countries. Operating expenses as a percent of revenue for Commercial and Structural increased as a result of continued investments to build the infrastructure necessary to achieve our growth objectives.

The Company reversed a $2.8 million earnout liability in the third quarter of 2013 to reflect the high probability that CRTS will not achieve its negotiated EBITDA target in 2013 because of the delay in the Wasit project. This compares to a $6.9 million reversal in the third quarter of 2012 largely due to a previous delay in the same project. The earnout reversal in the consolidated statements of operations directly impacts the year-over-year comparison for the Energy and Mining platform.

On a non-GAAP basis, operating income decreased 11.5 percent to $24.3 million. The North American Water and Wastewater segment improved operating performance by $4.0 million, while International Water and Wastewater reduced its operating loss by $2.5 million. Offsetting the improved performance was an operating income decline in our Energy and Mining and Commercial and Structural platforms of $6.3 million and $3.4 million, respectively.

Cash Flow

Net cash flow provided from continuing operations in the first nine months of 2013 was $41.6 million, or 111.5 percent of income from continuing operations, compared to $57.8 million in the first nine months of 2012. The decrease in operating cash flow from 2012 to 2013 was primarily related to slower than anticipated cash collections in the first half of the year from customer-directed project delays across several businesses and lost production days in the first half of 2013 from severe weather. We used $12.6 million of working capital during the nine-month period ended September 30, 2013 compared to $2.8 million used in the comparable period of 2012. Cash collections improved significantly in the third quarter and we expect further improvement in the fourth quarter. Also, in the first nine months of 2013, we incurred $4.2 million in acquisition-related expenses compared to $2.6 million in the first nine months of 2012.

Net cash flow used in investing activities in the first nine months of 2013 was $144.2 million compared to $72.7 million used in the first nine months of 2012. The increase in cash used in 2013 was primarily the result of the third quarter 2013 purchase of Brinderson (for a purchase price of $143.8 million, net of $3.8 million in cash acquired). Also in 2013, we received $18.3 million during the second quarter in connection with the sale of our fifty percent interest in the German joint venture. 2012 capital expenditures of $33.7 million, net of partner payments, reflected a significant investment for our coating facilities in Louisiana and Canada. Capital expenditures in 2013 are expected to be approximately $30 million. Also in 2012, we recorded purchases of Fyfe Asia (for a net purchase price of $39.4 million) and Fyfe Latin America (for a net purchase price of $3.0 million).

Net cash flows from financing activities provided $112.7 million during the first nine months of 2013 compared to $12.4 million provided in the first nine months of 2012. During 2013, we entered into a new credit facility and borrowed $147.6 million (gross purchase price) to fund the purchase of Brinderson and

4


used $5.0 million for facility financing fees. During 2012, we borrowed $26.0 million to fund the purchase of Fyfe Asia and for working capital and joint venture investments. In the first nine months of 2013, we used $19.0 million to repurchase 833,552 shares of our common stock through open market purchases and in connection with our equity compensation programs, as compared to $6.4 million to repurchase shares in the first nine months of 2012.

Net cash flow for the first nine months of 2013 was a $7.0 million use of cash.

Consolidated Backlog

AEGION CORPORATION AND SUBSIDIARIES
CONTRACT BACKLOG
(Unaudited in millions)

 
September 30,
2013
 
June 30,
2013
 
December 31,
2012
 
September 30,
2012
Energy and Mining (1)
$
172.5

 
$
193.0

 
$
240.8

 
$
246.9

North American Water and Wastewater
241.7

 
221.1

 
185.0

 
167.3

International Water and Wastewater
43.0

 
44.1

 
56.6

 
55.6

Commercial and Structural
48.2

 
52.2

 
50.8

 
46.7

Total hard backlog
505.4

 
510.4

 
533.2

 
516.5

Brinderson (2)
209.2

 
—

 
—

 
—

Total backlog
$
714.6

 
$
510.4

 
$
533.2

 
$
516.5

(1)All periods presented exclude Bayou Welding Works backlog as this business was discontinued in the second quarter of 2013.
(2)
Brinderson backlog represents expected unrecognized revenues to be realized under long-term Master Service Agreements (“MSAs”) and other signed contracts. If the remaining term of these arrangements exceeds 12 months, the unrecognized revenues attributable to such arrangements included in backlog are limited to only the next 12 months of expected revenues.

Our Energy and Mining segment contract backlog at September 30, 2013 was $172.5 million, which represented a $20.5 million, or 10.6 percent, decrease compared to June 30, 2013 and a $74.4 million, or 30.1 percent, decrease compared to September 30, 2012. Backlog for United Pipeline Systems declined sequentially and on a year-over-year basis primarily from the near completion of the $65 million project in Morocco awarded in 2012. This project accounted for 12.1 percent of Energy and Mining backlog at September 30, 2012, but only 1.1 percent of Energy and Mining backlog as of September 30, 2013. United Pipeline Systems is also facing a temporary curtailment in capital and maintenance expenditures for the mining sector in South America and oil and gas pipeline infrastructure in Mexico. Corrpro maintained a sizeable backlog as of September 30, 2013, as such, Corrpro's outlook remains strong and it is a source of recurring revenues for Energy and Mining. Backlog for our Bayou operation has been depressed in 2013 because of the timing of pipe coating activity supporting oil and gas offshore projects in the Gulf of Mexico. There are solid signs of a recovery in 2014 from a more active bid table. At the date of acquisition, July 1, 2013, backlog for Brinderson was $201.0 million and increased by 4.1 percent at September 30, 2013.

Contract backlog in our North American Water and Wastewater segment at September 30, 2013 was a record $241.7 million, a $20.6 million, or 9.3 percent, increase from backlog at June 30, 2013 and a $74.4 million, or 44.5 percent, increase from backlog at September 30, 2012. This segment won multiple large projects during the quarter in the Midwest and West regions of the United States. We expect backlog in Canada to remain steady in the coming quarters due to seasonality, while domestic market activity is expected to remain favorable for the remainder of 2013 and into 2014.


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Contract backlog in our International Water and Wastewater segment was $43.0 million at September 30, 2013. This represented a decrease of $1.1 million, or 2.5 percent, compared to June 30, 2013 and a decrease of $12.6 million, or 22.7 percent, compared to September 30, 2012. These decreases were primarily due to current year production in Spain, the Netherlands and Malaysia. We have a number of large near-term bidding opportunities in key markets in Asia. We believe our opportunities for profitable growth are significant if we are successful on these bids.

Contract backlog in our Commercial and Structural segment was $48.2 million at September 30, 2013. This represented a decrease of $4.0 million, or 7.7 percent, compared to June 30, 2013 and an increase of $1.5 million, or 3.2 percent, compared to September 30, 2012. Backlog has been slower to develop in North America than we anticipated. However, a growing bid table from investments made to enhance sales growth holds the promise of a recovery over the near term. In Asia, backlog decreased slightly due to current projects, especially large projects in Hong Kong and Singapore, and reflects delays receiving final awards for new projects in other countries in Asia.

Segment Reporting

Energy and Mining
 
Quarters Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
168,708

$
137,386

 
$
31,322

22.8
 %
Gross profit
37,118

33,710

 
3,408

10.1

Gross profit margin
22.0
%
24.5
%
 
n/a

(250
)bp
Operating expenses
24,821

19,176

 
5,645

29.4

Earnout reversal
(2,844
)
(6,892
)
 
(4,048
)
(58.7
)
Acquisition-related expenses
2,267

—

 
2,267

         n/m
Operating income
12,874

21,426

 
(8,552
)
(39.9
)
Operating margin
7.6
%
15.6
%
 
n/a

(800
)bp
Non-GAAP operating income
15,141

21,426

 
(6,285
)
(29.3
)

 
Nine Months Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
385,991

$
377,610

 
$
8,381

2.2
 %
Gross profit
87,678

93,466

 
(5,788
)
(6.2
)
Gross profit margin
22.7
%
24.8
%
 
n/a

(210
)bp
Operating expenses
61,866

57,456

 
4,410

7.7

Earnout reversal
(2,844
)
(6,892
)
 
(4,048
)
(58.7
)
Acquisition-related expenses
4,175

—

 
4,175

         n/m
Operating income
24,481

42,902

 
(18,421
)
(42.9
)
Operating margin
6.3
%
11.4
%
 
n/a

(510
)bp
Non-GAAP operating income
28,656

42,902

 
(14,246
)
(33.2
)

Third Quarter 2013 versus Third Quarter 2012

Excluding acquisition-related expenses, Energy and Mining operating income decreased $6.3 million to $15.1 million, due principally to a lack of project activity available in the market for our Bayou operations in New Iberia, Louisiana, a decline in market conditions in many of the international markets for United Pipeline Systems, notably the mining sector, and significantly lower operating income from the large

6


phosphate lining project in Morocco as this project nears completion. Offsetting the reported decline in operating income was Brinderson’s contribution of $2.6 million in operating income. In addition, revenues and profits were recognized in the third quarter of 2013 from the start of the Wasit gas field project in Saudi Arabia for our CRTS robotic coating operations, although below our plan because of another delay in the offshore production schedule.

During the third quarters of 2013 and 2012, we reversed $2.8 million and $5.9 million, respectively, of the contractual earnouts related to CRTS. In each year, operating results were below the target amounts in the purchase agreement, mostly due to the Wasit project.

North American Water and Wastewater

 
Quarters Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
95,997

$
77,818

 
$
18,179

23.4
%
Gross profit
21,357

17,183

 
4,174

24.3

Gross profit margin
22.2
%
22.1
%
 
n/a

10
bp
Operating expenses
11,029

10,894

 
135

1.2

Operating income
10,328

6,289

 
4,039

64.2

Operating margin
10.8
%
8.1
%
 
n/a

270
bp

 
Nine Months Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
261,616

$
231,647

 
$
29,969

12.9
%
Gross profit
55,786

48,850

 
6,936

14.2

Gross profit margin
21.3
%
21.1
%
 
n/a

20
bp
Operating expenses
32,776

32,489

 
287

0.9

Operating income
23,010

16,361

 
6,649

40.6

Operating margin
8.8
%
7.1
%
 
n/a

170
bp

Third Quarter 2013 versus Third Quarter 2012

Our North American Water and Wastewater segment achieved a $4.0 million, or 64.2 percent, increase in operating income compared to the prior year quarter. The growth came from increased volume across all geographies, especially large diameter footage, which increased 105 percent compared to the prior year. The Canadian region also contributed because of a shift of work from the first half of 2013 where there was an abnormal amount of weather delays into the third quarter of 2013 and recent project awards in Eastern Canada. Operating margins improved 270 basis points from favorable project mix with large diameter work. We also have maintained our bidding discipline and have experienced increased success from our enhanced estimating and project management structure.








7


International Water and Wastewater

 
Quarters Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
26,152

$
27,766

 
$
(1,614
)
(5.8
)%
Gross profit
5,116

2,890

 
2,226

77.0

Gross profit margin
19.6
 %
10.4
 %
 
n/a

920
bp
Operating expenses
5,373

5,640

 
(267
)
(4.7
)
Acquisition-related expenses
—

445

 
(445
)
          n/m
Operating loss
(257
)
(3,195
)
 
2,938

92.0

Operating margin
(1.0
)%
(11.5
)%
 
n/a

1,050
bp
Non-GAAP operating loss
(257
)
(2,750
)
 
2,493

90.7


 
Nine Months Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
80,064

$
80,712

 
$
(648
)
(0.8
)%
Gross profit
15,424

9,603

 
5,821

60.6

Gross profit margin
19.3
 %
11.9
 %
 
n/a

740
bp
Operating expenses
16,762

16,700

 
62

0.4

Acquisition-related expenses
—

445

 
(445
)
          n/m
Operating loss
(1,338
)
(7,542
)
 
6,204

82.3

Operating margin
(1.7
)%
(9.3
)%
 
n/a

760
bp
Non-GAAP operating loss
(1,338
)
(7,097
)
 
5,759

81.1


Third Quarter 2013 versus Third Quarter 2012

Excluding acquisition-related expenses, operating income in our International Water and Wastewater improved by $2.5 million, or 90.7 percent, for the third quarter of 2013 compared to the prior year quarter. During the quarter, we reduced losses associated with the legacy projects in Singapore by $1.6 million. We also recognized greater profits from project activity in Australia and Malaysia. Partially offsetting these improvements were project delays from the effects of sustained economic recession impacting activity in France and Switzerland and lower third party tube sales in certain markets in Europe.






8


Commercial and Structural

 
Quarters Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
16,808

$
19,897

 
$
(3,089
)
(15.5
)%
Gross profit
5,820

9,148

 
(3,328
)
(36.4
)
Gross profit margin
34.6
 %
46.0
%
 
n/a

(1,140
)bp
Operating expenses
6,733

6,641

 
92

1.4

Acquisition-related expenses
—

162

 
(162
)
        n/m
Operating income (loss)
(913
)
2,345

 
(3,258
)
(138.9
)
Operating margin
(5.4
)%
11.8
%
 
n/a

(1,720
)bp
Non-GAAP operating income (loss)
(913
)
2,507

 
(3,420
)
(136.4
)

 
Nine Months Ended September 30,
 
Increase (Decrease)
 
2013
2012
 
$
%
Revenues
$
48,070

$
55,267

 
$
(7,197
)
(13.0
)%
Gross profit
17,228

25,803

 
(8,575
)
(33.2
)
Gross profit margin
35.8
 %
46.7
%
 
n/a

(1,090
)bp
Operating expenses
18,708

18,669

 
39

0.2

Acquisition-related expenses
—

2,149

 
(2,149
)
        n/m
Operating income (loss)
(1,480
)
4,985

 
(6,465
)
(129.7
)
Operating margin
(3.1
)%
9.0
%
 
n/a

(1,210
)bp
Non-GAAP operating income (loss)
(1,480
)
7,134

 
(8,614
)
(120.7
)

Third Quarter 2013 versus Third Quarter 2012

Operating income, excluding acquisition-related expenses, in our Commercial and Structural platform decreased $3.4 million, or 136.4 percent. The North America operations had lower workable backlog, project performance issues, customer driven project delays and fewer higher margin pipeline projects than in the prior year period. In addition, our Asian operations experienced delays on several large projects. Partially offsetting the operating income decline was a large manufacturing material order for our Canadian operations. We are repositioning the North American business to accelerate growth from the challenges experienced so far in 2013. The enhancements to the sales organization are to be completed in the coming months. The bid table has improved over the past few months bolstering expectations for a return to profitability in the fourth quarter and for growth in 2014. Further investments are underway to improve our project management capabilities in order to enhance profitability.


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Aegion Corporation is a global leader in infrastructure protection and maintenance, providing proprietary technologies and services to (i) protect against the corrosion of industrial pipelines; (ii) rehabilitate and strengthen water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures; and (iii) utilize integrated professional services in engineering, procurement, construction, maintenance and turnaround services to a broad range of energy related industries. More information about Aegion can be found on our internet site at www.aegion.com.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. We make forward-looking statements in this news release that represent our beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to us 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 our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the Securities and Exchange Commission on February 27, 2013. In light of these risks, uncertainties and assumptions, the forward-looking events may not occur. In addition, our actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, we do 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 us from time to time in our periodic 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 us in this news release are qualified by these cautionary statements.

Regulation G Statement

We have presented certain information in this release excluding certain items that impacted income, expense and earnings per share from continuing operations. The (non-GAAP) earnings per share exclude the earnings impact of acquisition-related expenses, charges associated with our decision to liquidate Bayou Welding Works and a goodwill write-down associated with the anticipated sale of our shares in Bayou Coatings, LLC. Aegion management uses such non-GAAP information internally to evaluate financial performance for our operations, as we believe it allows us to more accurately compare our ongoing performance across periods.

Aegion®, the Aegion® logo, Insituform®, the Insituform® logo, United Pipeline Systems®, Tite Liner®, Bayou Companies®, Corrpro®, CRTS™, Fibrwrap®, Fyfe® and Brinderson® are the registered and unregistered trademarks of Aegion Corporation and its affiliates.

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


10


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share and per share information)

 
For the Quarters Ended September 30,
 
For the Nine Months Ended September 30,
 
2013
2012
 
2013
2012
Revenues
$
307,665

$
262,867

 
$
775,741

$
745,236

Cost of revenues
238,254

199,936

 
599,625

567,514

Gross profit
69,411

62,931

 
176,116

177,722

Operating expenses
47,956

42,351

 
130,112

125,314

Reversal of earnout
(2,844
)
(6,892
)
 
(2,844
)
(6,892
)
Acquisition-related expenses
2,267

607

 
4,175

2,594

Operating income
22,032

26,865

 
44,673

56,706

Other income (expense):
 
 
 
 
 
Interest expense
(5,454
)
(2,481
)
 
(10,033
)
(7,591
)
Interest income
40

86

 
158

230

Other
(522
)
(237
)
 
6,561

(1,169
)
Total other expense
(5,936
)
(2,632
)
 
(3,314
)
(8,530
)
Income before taxes on income
16,096

24,233

 
41,359

48,176

Taxes on income
3,164

5,064

 
7,985

11,862

Income before equity in earnings of affiliated companies
12,932

19,169

 
33,374

36,314

Equity in earnings of affiliated companies
1,691

2,001

 
3,903

4,389

Income from continuing operations
14,623

21,170

 
37,277

40,703

Loss from discontinued operations
(558
)
(435
)
 
(6,456
)
(880
)
Net income
14,065

20,735

 
30,821

39,823

Non-controlling interests
(127
)
(1,191
)
 
(959
)
(2,057
)
Net income attributable to Aegion Corporation
$
13,938

$
19,544

 
$
29,862

$
37,766

 
 
 
 
 
 
Earnings per share attributable to Aegion Corporation:
 
 
 
 
 
Basic:
 
 
 
 
 
Income from continuing operations
$
0.37

$
0.51

 
$
0.94

$
0.98

Loss from discontinued operations
(0.01
)
(0.01
)
 
(0.17
)
(0.02
)
Net income
$
0.36

$
0.50

 
$
0.77

$
0.96

Diluted:
 
 
 
 
 
Income from continuing operations
$
0.37

$
0.50

 
$
0.93

$
0.97

Loss from discontinued operations
(0.01
)
(0.01
)
 
(0.17
)
(0.02
)
Net income
$
0.36

$
0.49

 
$
0.76

$
0.95

 
 
 
 
 
 
 
 
 
 
 
 
Weighted average shares outstanding - Basic
38,672,441

39,285,484

 
38,836,276

39,253,373

Weighted average shares outstanding - Diluted
39,071,373

39,605,229

 
39,228,625

39,559,614




11


AEGION CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS RECONCILIATION
(Unaudited) (Non-GAAP)
(in thousands, except share and per share information)



For the Quarter Ended September 30, 2013
 
Consolidated
 
Acquisition-Related Expenses
 
Credit Facility Fees
 
Total
Affected Line Items:
 
 
 
 
 
 
 
Operating expenses
$
50,223

 
$
(2,267
)
 
$
—

 
$
47,956

Operating income
22,032

 
2,267

 
—

 
24,299

Interest expense
(5,454
)
 
—

 
1,964

 
(3,490
)
Income before taxes on income
16,096

 
2,267

 
1,964

 
20,327

Taxes on income
3,164

 
902

 
782

 
4,848

 
 
 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
14,496

 
1,365

 
1,182

 
17,043

 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
$
0.37

 
$
0.03

 
$
0.03

 
$
0.44


(1) Includes non-controlling interests and equity in earnings of affiliated companies.




For the Quarter Ended September 30, 2012
 
Consolidated
 
Acquisition-Related Expenses
 
Total
Affected Line Items:
 
 
 
 
 
Operating expenses
$
42,958

 
$
(607
)
 
$
42,351

Operating income
26,865

 
607

 
27,472

Income before taxes on income
24,233

 
607

 
24,840

Taxes on income
5,064

 
233

 
5,297

 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
19,979

 
374

 
20,353

 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
$
0.50

 
$
0.01

 
$
0.51


(1) Includes non-controlling interests and equity in earnings of affiliated companies.


12


AEGION CORPORATION AND SUBSIDIARIES
STATEMENT OF OPERATIONS RECONCILIATION
(Unaudited) (Non-GAAP)
(in thousands, except share and per share information)



For the Nine-Month Period Ended September 30, 2013
 
Consolidated
 
Acquisition-Related Expenses
 
Credit Facility Fees
 
Joint Venture/Divestiture Activity
 
Total
Affected Line Items:
 
 
 
 
 
 
 
 
 
Operating expenses
$
134,287

 
$
(4,175
)
 
$
—

 
$
—

 
$
130,112

Operating income
44,673

 
4,175

 
—

 
—

 
48,848

Interest expense
(10,033
)
 
—

 
1,964

 
—

 
(8,069
)
Other
6,561

 
—

 
—

 
(8,688
)
 
(2,127
)
Income before taxes on income
41,359

 
4,175

 
1,964

 
(8,688
)
 
38,810

Taxes on income
7,985

 
1,662

 
782

 
(2,635
)
 
7,794

 
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
36,318

 
2,513

 
1,182

 
(6,053
)
 
33,960

 
 
 
 
 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
$
0.93

 
$
0.06

 
$
0.03

 
$
(0.15
)
 
$
0.87


(1) Includes non-controlling interests and equity in earnings of affiliated companies.




For the Nine-Month Period Ended September 30, 2012
 
Consolidated
 
Acquisition-Related Expenses
 
Total
Affected Line Items:
 
 
 
 
 
Operating expenses
$
127,908

 
$
(2,594
)
 
$
125,314

Operating income
56,706

 
2,594

 
59,300

Income before taxes on income
48,176

 
2,594

 
50,770

Taxes on income
11,862

 
247

 
12,109

 
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
38,646

 
2,347

 
40,993

 
 
 
 
 
 
Diluted earnings per share:
 
 
 
 
 
Income from continuing operations attributable to Aegion Corporation (1)
$
0.97

 
$
0.06

 
$
1.04


(1) Includes non-controlling interests and equity in earnings of affiliated companies.


13


AEGION CORPORATION AND SUBSIDIARIES
SEGMENT DATA
(in thousands)

 
Quarters Ended September 30,
 
Nine Months Ended September 30,
 
2013
 
2012
 
2013
 
2012
Revenues:
 
 
 
 
 
 
 
Energy and Mining
$
168,708

 
$
137,386

 
$
385,991

 
$
377,610

North American Water and Wastewater
95,997

 
77,818

 
261,616

 
231,647

International Water and Wastewater
26,152

 
27,766

 
80,064

 
80,712

Commercial and Structural
16,808

 
19,897

 
48,070

 
55,267

Total revenues
$
307,665

 
$
262,867

 
$
775,741

 
$
745,236

 
 
 
 
 
 
 
 
Gross profit:
 
 
 
 
 
 
 
Energy and Mining
$
37,118

 
$
33,710

 
$
87,678

 
$
93,466

North American Water and Wastewater
21,357

 
17,183

 
55,786

 
48,850

International Water and Wastewater
5,116

 
2,890

 
15,424

 
9,603

Commercial and Structural
5,820

 
9,148

 
17,228

 
25,803

Total gross profit
$
69,411

 
$
62,931

 
$
176,116

 
$
177,722

 
 
 
 
 
 
 
 
Operating income (loss):
 
 
 
 
 
 
 
Energy and Mining
$
12,874

 
$
21,426

 
$
24,481

 
$
42,902

North American Water and Wastewater
10,328

 
6,289

 
23,010

 
16,361

International Water and Wastewater
(257
)
 
(3,195
)
 
(1,338
)
 
(7,542
)
Commercial and Structural
(913
)
 
2,345

 
(1,480
)
 
4,985

Total operating income
$
22,032

 
$
26,865

 
$
44,673

 
$
56,706





14


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share amounts)

 
September 30, 2013
 
December 31, 2012
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
126,687

 
$
133,676

Restricted cash
523

 
382

Receivables, net
238,585

 
232,854

Retainage
31,392

 
30,172

Costs and estimated earnings in excess of billings
93,443

 
67,740

Inventories
61,764

 
59,123

Prepaid expenses and other current assets
32,724

 
27,728

Current assets of discontinued operations
12,365

 
8,986

Total current assets
597,483

 
560,661

Property, plant & equipment, less accumulated depreciation
187,294

 
183,163

Other assets
 
 
 
Goodwill
334,416

 
272,294

Identified intangible assets, less accumulated amortization
212,506

 
159,629

Investments
10,920

 
19,181

Deferred income tax assets
7,731

 
7,989

Other assets
13,241

 
8,153

Total other assets
578,814

 
467,246

Non-current assets of discontinued operations
1,242

 
6,824

 
 
 
 
Total Assets
$
1,364,833

 
$
1,217,894

 
 
 
 
Liabilities and Equity
 
 
 
Current liabilities
 
 
 
Accounts payable
$
85,091

 
$
74,724

Accrued expenses
88,393

 
79,580

Billings in excess of costs and estimated earnings
24,953

 
31,552

Current maturities of long-term debt and line of credit
26,879

 
33,775

Current liabilities of discontinued operations
2,401

 
4,885

Total current liabilities
227,717

 
224,516

Long-term debt, less current maturities
366,469

 
221,848

Deferred income tax liabilities
37,140

 
39,790

Other non-current liabilities
11,354

 
15,620

Total liabilities
642,680

 
501,774

 
 
 
 
Equity
 
 
 
Preferred stock, undesignated, $.10 par – shares authorized 2,000,000; none outstanding
—

 
—

Common stock, $.01 par – shares authorized 125,000,000; shares issued and outstanding 38,576,118 and 38,952,561, respectively
386

 
390

Additional paid-in capital
244,189

 
257,209

Retained earnings
456,319

 
426,457

Accumulated other comprehensive income
3,615

 
15,260

Total stockholders’ equity
704,509

 
699,316

Non-controlling interests
17,644

 
16,804

Total equity
722,153

 
716,120

 
 
 
 
Total Liabilities and Equity
$
1,364,833

 
$
1,217,894


15


AEGION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands)
 
For the Nine Months Ended September 30,
 
2013
 
2012
Cash flows from operating activities:
 
 
 
Net income
$
30,821

 
$
39,823

Loss from discontinued operations
6,456

 
880

 
37,277

 
40,703

Adjustments to reconcile to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,126

 
28,743

Gain on sale of fixed assets
(815
)
 
(246
)
Equity-based compensation expense
5,090

 
5,246

Deferred income taxes
(1,523
)
 
(1,800
)
Equity in earnings of affiliated companies
(3,903
)
 
(4,389
)
Debt issuance costs
1,964

 
—

Earnout reversal
(2,844
)
 
(6,892
)
Gain on sale of interests in German joint venture
(11,771
)
 
—

Loss on foreign currency transactions
1,700

 
138

Other
(159
)
 
(913
)
Changes in operating assets and liabilities (net of acquisitions):
 
 
 
Restricted cash
(142
)
 
(359
)
Return on equity of affiliated companies
4,027

 
5,002

Receivables net, retainage and costs and estimated earnings in excess of billings
(11,144
)
 
3,760

Inventories
(3,416
)
 
(6,333
)
Prepaid expenses and other assets
(5,044
)
 
(2,624
)
Accounts payable and accrued expenses
2,932

 
(3,980
)
Other operating
198

 
1,773

Net cash provided by operating activities of continuing operations
41,553

 
57,829

Net cash provided by (used in) operating activities of discontinued operations
(10,179
)
 
863

Net cash provided by operating activities
31,374

 
58,692

 
 
 
 
Cash flows from investing activities:
 
 
 
Capital expenditures
(20,079
)
 
(33,710
)
Proceeds from sale of fixed assets
1,856

 
3,399

Patent expenditures
(469
)
 
(420
)
Sale of interests in German joint venture
18,300

 
—

Receipt of cash from Hockway sellers due to final net working capital adjustments
—

 
1,048

Purchase of Brinderson, net of cash acquired
(143,763
)
 
—

Purchase of Fyfe Latin America, net of cash acquired
—

 
(3,048
)
Purchase of Fyfe Asia, net of cash acquired
—

 
(39,415
)
Payment to Fyfe North America sellers for final net working capital adjustments
—

 
(532
)
Net cash used in investing activities of continuing operations
(144,155
)
 
(72,678
)
Net cash provided by (used in) investing activities of discontinued operations
774

 
(1,002
)
Net cash used in investing activities
(143,381
)
 
(73,680
)
 
 
 
 
Cash flows from financing activities:
 
 
 
Proceeds from issuance of common stock upon stock option exercises, including tax effects
903

 
840

Repurchase of common stock
(19,017
)
 
(6,354
)
Investments from noncontrolling interests
—

 
4,939

Payment of earnout related to acquistion of CRTS, Inc.
(2,112
)
 
—

Credit facility financing fees
(5,013
)
 
—

Proceeds on notes payable
1,541

 
5,608

Principal payments on notes payable
—

 
(890
)
Proceeds from line of credit
—

 
26,000

Proceeds from long-term debt
385,500

 
983

Principal payments on long-term debt
(249,125
)
 
(18,750
)
Net cash provided by financing activities
112,677

 
12,376

Effect of exchange rate changes on cash
(7,659
)
 
(2,203
)
Net decrease in cash and cash equivalents for the period
(6,989
)
 
(4,815
)
Cash and cash equivalents, beginning of period
133,676

 
106,129

Cash and cash equivalents, end of period
$
126,687

 
$
101,314


16