Aegion Corporation Increases Third Quarter Non-GAAP Earnings Per Share by 85 Percent to $0.50 on Strong Performance from Energy and Mining and Profitability Improvements in North American Water and Wastewater

Wed Oct 31, 2012 5:30pm EDT

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Aegion Corporation Increases Third Quarter Non-GAAP Earnings Per Share by 85 Percent to $0.50 on Strong Performance from Energy and Mining and Profitability Improvements in North American Water and Wastewater

The Company updates 2012 non-GAAP earnings per share outlook to $1.40-$1.45

  • Energy and Mining increased third quarter operating income by 101.9 percent to $20.7 million (non-GAAP) with operating margins of 14.8 percent, excluding acquisition expenses and restructuring charges in 2011
  • North American Water and Wastewater grew third quarter operating income 27.9 percent to $6.3 million (non-GAAP) with operating margins of 8.1 percent, excluding restructuring charges in 2011
  • Commercial and Structural contributed $2.5 million in third quarter operating income with operating margins of 12.6 percent, excluding acquisition-related expenses in 2012
  • Aegion reported record backlog of $520.3 million as of September 30, 2012
  • Year-to-date cash flow from operations reached $58.7 million on earnings growth and improvements in working capital management

Aegion Corporation (Nasdaq Global Select Market: AEGN) today reported 2012 third quarter net income of $19.9 million, or $0.50 per diluted share (non-GAAP), excluding the impact of $0.6 million (pre-tax) of acquisition-related expenses compared to net income of $10.8 million, or $0.27 per diluted share (non-GAAP), in the third quarter of 2011. Inclusive of the acquisition-related expenses, net income was $19.5 million, or $0.49 per diluted share. For the first nine months of 2012, net income was $40.1 million, or $1.01 per diluted share (non-GAAP), excluding acquisition-related expenses of $2.6 million. Inclusive of these acquisition-related expenses, reported net income was $37.8 million, or $0.95 per diluted share.

J. Joseph Burgess, Aegion’s President and Chief Executive Officer, commented, “Our results this quarter position Aegion to end the year with strong earnings per share growth and improved return on invested capital from a base business that is increasingly more robust. Our Energy and Mining platform continued to be the growth engine for our Company, providing a substantial portion of the improved operating profits for the third quarter of 2012 as a result of 22.5 percent quarter over quarter revenue growth. Our North American Water and Wastewater segment has transitioned into a more consistent cash generator as a result of its focus on improving gross and operating margins through better overall project management. Our new Commercial and Structural platform continues to demonstrate the high level of performance we anticipated from the August 2011 acquisition of Fyfe Group’s North America business, and we are gaining momentum by increasing the rate of growth as we expected.”

“I am very pleased with the record performance in the quarter, notwithstanding challenges we identified earlier in the year. Specifically, we’ve seen continued economic uncertainty in Europe, significant project delays in Australia, and additional costs in connection with the close out of three legacy projects in Singapore impacting our European and Asia-Pacific Water and Wastewater segments.”

“We expect to close out the year with strong earnings performance taking into consideration these challenges along with a shift in the project activity for the CRTS/Wasit project and a greater proportion of the United Pipeline System Morocco project occurring in 2013. As a result, we are narrowing our non-GAAP earnings per share guidance in 2012 to $1.40 to $1.45. Return on capital is expected to be near 8 percent. Cash from operations for the year is anticipated to reach an all-time high of $80 million to $85 million. These expected results will represent a dramatic improvement from 2011 with earnings per share forecasted to be the second highest in the Company’s history.”

“With a record backlog of $520 million as of September 30, 2012 and a growing bid table, we expect to conclude 2012 having firmly established our three platforms for sustainable growth and improving return on invested capital into the future. We are accomplishing our objective of transforming the North America Water and Wastewater segment into a more consistent business, able to provide improved margins and to become a reliable source of cash. We are adapting our European and Asia-Pacific Water and Wastewater segments for recovery and profitability given the current challenging market dynamics. But most importantly, our Energy and Mining and Commercial and Structural platforms are delivering the growth needed this year and are anticipated to be the source for further earnings growth in 2013 and beyond.”

Consolidated Highlights

For the third quarter, revenues increased $18.9 million, or 7.7 percent, compared to prior year quarter, primarily due to the inclusion of revenues from our 2011 acquisitions and growth from our Energy and Mining segment, partially offset by lower revenues in our North American, European and Asia-Pacific Water and Wastewater segments as a result of challenging market conditions.

For the quarter, gross profit increased by 19.3 percent to $62.8 million compared to the prior year quarter, led by our Commercial and Structural segment, which increased gross profit by $7.6 million. The third quarter of 2012 included a full quarter of financial results for Fyfe North America, Fyfe Asia and Fyfe Latin America, compared to the third quarter of 2011, which only included thirty days of financial results for Fyfe’s North American operations. Additionally, our Energy and Mining and North American Water and Wastewater segments increased gross profit by 22.5 percent and 8.2 percent, respectively. Gross margins improved from 16.7 percent in the third quarter of 2011 to 22.1 percent in the third quarter of 2012 in our North American Water and Wastewater segment because of our improved project execution and enhanced project management focus. Consolidated gross margins were 23.7 percent for the quarter, a 230 basis point increase compared to the third quarter of 2011. Our Commercial and Structural segment had a 180 basis point favorable impact on our consolidated gross margin.

Operating expenses increased $5.7 million, or 15.2 percent, for the third quarter of 2012 compared to the third quarter of 2011, primarily due to the inclusion of $5.2 million in additional operating expenses (including purchase price depreciation and amortization) associated with our Commercial and Structural segment from a full quarter of financial results, investments to more fully develop key end markets, and a slight increase in our Energy and Mining segment necessary to support the international growth of the segment. Offsetting the increases was a decrease in all of our Water and Wastewater segments, primarily from the restructuring and cost reduction efforts initiated in the second half of 2011, and continued focus on cost efficiencies throughout the Company.

Operating income, excluding acquisition-related transaction expenses and restructuring charges in the prior year, increased 56.5 percent to $26.7 million (non-GAAP) from $17.1 million in the third quarter of 2011. Energy and Mining operating income, excluding acquisition expenses and restructuring charges, grew 101.9 percent to $20.7 million, while North American Water and Wastewater operating income, excluding restructuring charges, reached $6.3 million as compared to $4.9 million (non-GAAP) in the prior year quarter. These increases were partially offset by a $1.1 million (non-GAAP) decrease in operating income in our European Water and Wastewater segment, excluding restructuring charges in 2011, because of weak market conditions throughout Europe. Costs associated with the close out of older projects in Singapore, along with delays in project releases in Australia resulted in a $3.6 million operating loss (non-GAAP) for our Asia-Pacific Water and Wastewater segment, excluding acquisition-related expenses, for the third quarter of 2012. Our Commercial and Structural segment, excluding acquisition-related expenses, contributed $2.5 million (non-GAAP) in operating income during the third quarter of 2012. Operating margins, excluding acquisition-related expenses, increased to 10.1 percent (non-GAAP) in the quarter compared to 6.9 percent (non-GAAP) in the third quarter of 2011.

For the first nine months of 2012, revenues grew by 10.5 percent to $753.3 million compared to the prior year period, primarily from strong performance from our Energy and Mining segment and a significant contribution from our Commercial and Structural segment. For such period compared to the prior year period, gross profit increased 27 percent to $177.9 million with a 310 basis point gross margin expansion to 23.6 percent. Operating expenses increased by 15 percent as a result of our 2011 and 2012 acquisitions as well as the Company’s investment for future growth initiatives, primarily in our Energy and Mining and Commercial and Structural segments, partially offset by lower operating expenses in our Water and Wastewater platform. For nine-months ended September 30, 2012 compared to the prior year period, operating income, excluding acquisition-related expenses and restructuring charges in the prior year, increased 88.7 percent to $58.0 million and operating margins expanded by 320 basis points to 7.7 percent (non-GAAP).

Cash Flow For The First Nine Months of 2012

Net cash flow from operations in the first nine months of 2012 was a $58.7 million, or 147.4 percent of net income, source of cash as compared to a $9.0 million use of cash in the first nine months of 2011. The increase in operating cash flow from 2011 to 2012 was primarily related to higher earnings, including increased purchase price depreciation and amortization expense from the acquisitions made in 2011, and improved working capital management. The largest contributor to the increase in cash from operations was from the impact of strong collections of receivables from improved cash management practices, along with a significant growth in net income.

Net cash flow from investing activities in the first nine months of 2012 was a $73.7 million use of cash as a result of the purchase 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), along with higher capital expenditures totaling $34.7 million compared to $16.1 million in the first nine months of 2011. The increase in capital expenditures was directly related to the funding for an insulation coating plant in partnership with Wasco Energy at our facility in New Iberia, Louisiana and expansion of our Canadian coating operation. We spent a total of $18.4 million on these two projects in the first nine months of 2012, a portion of which we received from our joint venture partners.

Net cash from financing activities in the first nine months of 2012 was $12.4 million, primarily due to a draw of $26.0 million on our line of credit for a portion of the funding for the Fyfe Asia acquisition in April 2012 and for working capital needs. During the nine months ended September 30, 2012, we also repurchased $6.4 million of our common stock in open market repurchases and in connection with our Company’s equity incentive program. Partially offsetting such uses of cash was our repayment of $18.8 million on our term loan in accordance with the terms of our credit facility.

Net cash flow for the first nine months of 2012 was a $4.8 million use of cash.

Consolidated Backlog

AEGION CORPORATION AND SUBSIDIARIES

CONTRACT BACKLOG

(Unaudited in millions)

 

 

   

September 30,
2012

   

June 30,
2012

   

December 31,
2011

   

September 30,
2011

Energy and Mining $ 250.7     $ 250.0     $ 256.4     $ 225.6
North American Water and Wastewater 167.3 158.2 130.0 157.5
European Water and Wastewater 25.7 20.9 20.7 19.2
Asia-Pacific Water and Wastewater 29.9 36.1 37.5 37.4
Commercial and Structural(1)   46.7       29.5       19.6       17.5
Total $ 520.3     $ 494.7     $ 464.2     $ 457.2

____________

 
       

(1)

  September 30, 2012 and June 30, 2012 include backlog from our April 2012 and January 2012 acquisitions of Fyfe Asia and Fyfe Latin America, respectively. Our August 2011 acquisition of Fyfe North America is included for all periods.
 

Our Energy and Mining segment contract backlog at September 30, 2012 was $250.7 million, which represented a $0.7 million, or 0.3 percent, increase compared to June 30, 2012 and a $25.1 million, or 11.1 percent, increase compared to September 30, 2011. We expect continued strong global energy demand and pipeline integrity spending will lead to expansion within our existing geographies for our Corrpro corrosion engineering services, United Pipelines System Tite Liner® technology and Bayou coatings businesses. We are building out our global presence in markets such as Asia and the Middle East with these technologies as well as our CRTS robotics technology for internal welded joint coatings primarily for offshore markets. Strong commodity prices will also provide sustainable opportunities for the Energy and Mining platform for future periods, particularly as it relates to maintenance spending in the sector.

Contract backlog in our North American Water and Wastewater segment at September 30, 2012 represented a $9.1 million, or 5.8 percent, increase from backlog at June 30, 2012 and a $9.8 million, or 6.2 percent, increase from backlog at September 30, 2011. The increase in backlog was because of moderate domestic growth, specifically the Eastern region of the United States, which saw increased bidding activity and certain significant multi-year tenders during the last several quarters. Additionally, we expect backlog for this segment at year-end to increase compared to September 30, 2012 because of several recent large project wins that should be signed in the fourth quarter. Bidding opportunities remain steady throughout North America.

Contract backlog in our European Water and Wastewater segment was $25.7 million at September 30, 2012. This represented an increase of $4.8 million, or 23.0 percent, compared to June 30, 2012 and an increase of $6.5 million, or 33.9 percent, compared to September 30, 2011. Compared to June 30, 2012, the increase was primarily the result of higher backlog in the Netherlands and Switzerland, as we experienced slight improvements during the third quarter, which should favorably impact near term operating performance.

Contract backlog in our Asia-Pacific Water and Wastewater segment was $29.9 million at September 30, 2012. This backlog represented a decrease of $6.2 million, or 17.2 percent, compared to June 30, 2012 and a decrease of $7.5 million, or 20.1 percent, compared to September 30, 2011. The decrease from June 30, 2012 was primarily the result of continued bid and work release delays in Australia and increased revenue generated in the third quarter from our Hong Kong operations. We anticipate an increase in backlog during the fourth quarter as we anticipate the award of certain large contracts in Australia, if we successfully win the tenders.

Backlog at September 30, 2012 for our Commercial and Structural segment was $46.7 million compared to $29.5 million at June 30, 2012 and $17.5 million at September 30, 2011. The increase in backlog during the third quarter of 2012 compared to the second quarter was primarily due to a $12.9 million project award in Hong Kong. Project quoting activity continues to be strong for all areas of Fyfe’s business, both domestically and internationally.

Segment Reporting

Energy and Mining

    Quarters Ended September 30,     Increase (Decrease)
2012     2011 $     %
Revenues $ 139,674     $ 114,014 $ 25,660     22.5 %
Gross profit 33,553 27,392 6,161 22.5
Gross profit margin 24.0 % 24.0 % n/a
Operating expenses 19,742 18,838 904 4.8
Reversal of earnout (6,892 ) (1,700 ) (5,192 ) (305.4 )
Acquisition-related expenses 2,358 (2,358 ) (100.0 )
Restructuring charges 778 (778 ) (100.0 )
Operating income 20,703 7,118 13,585 190.9
Operating margin 14.8 % 6.2 % n/a 8.6
       
Nine Months Ended September 30, Increase (Decrease)
2012     2011 $     %
Revenues $ 385,655     $ 309,871 $ 75,784     24.5 %
Gross profit 93,630 75,307 18,323 24.3
Gross profit margin 24.3 % 24.3 % n/a
Operating expenses 58,922 53,052 5,870 11.1
Reversal of earnout (6,892 ) (1,700 ) (5,192 ) (305.4 )
Acquisition-related expenses 2,684 (2,684 ) (100.0 )
Restructuring charges 778 (778 ) (100.0 )
Operating income 41,600 20,493 21,107 103.0
Operating margin 10.8 % 6.6 % n/a 4.2
 

In the third quarter of 2012, our Energy and Mining operating income, excluding acquisition-related expenses and restructuring charges in 2011, increased to $20.7 million compared to $10.3 million for the third quarter of 2011 (non-GAAP). All platforms of our Energy and Mining operations increased revenues and gross profit during the quarter. Our pipe coating operations improved over the prior year quarter due to an increase in offshore project activity completed during the third quarter of 2012. Additionally, CRTS performed well with gross margins of 46.5 percent from several projects including two offshore projects in Brazil. These increases were partially offset by anticipated lower margins associated with large international projects in our United Pipeline Systems operations, particularly Morocco, and increased material sales within our Corrpro operations, which carry lower margins.

Operating expenses increased slightly in the third quarter of 2012 compared to the prior year quarter primarily because of operating expenses attributable to Hockway, which was acquired on August 3, 2011, and a slight increase in operating expenses for our United Pipeline Systems operations to support international growth. Additionally, during the third quarter of 2012, we reversed $5.9 million and $1.0 million of the contractual earnouts related to CRTS and Hockway, respectively, because of the current year results being below the stated threshold amounts in the respective purchase agreements, mostly due to the Saudi Arabia Wasit project being pushed from 2012 to 2013.

We originally expected the CRTS/Wasit project for the full year of 2012 to generate approximately $13 million in operating income beyond early payments for equipment delivery and engineering services. All of the internal welded joint seam coatings both offshore and onshore have now been scheduled to begin in 2013. The $5.9 million earnout reversal in the third quarter only partially offsets the previously anticipated profits from this project in 2012.

We continue to believe that improving global end markets, regulatory maintenance requirements and our strong position in certain high spend areas will lead to continued expansion in 2013 within existing geographies for Corrpro’s corrosion engineering services, United Pipeline System’s Tite Liner® technology, Bayou Coating Services and CRTS’s proprietary robotics technologies, as well as into new geographies, specifically, the Middle East, North Africa, South America and to a certain extent Asia.

North American Water and Wastewater

    Quarters Ended September 30,     Increase (Decrease)
2012     2011 $     %
Revenues $ 77,818     $ 95,200 $ (17,382 )     (18.3 )%
Gross profit 17,183 15,882 1,301 8.2
Gross profit margin 22.1 % 16.7 % n/a 5.4
Operating expenses 10,894 10,966 (72 ) (0.7 )
Restructuring charges 503 (503 ) (100.0 )
Operating income 6,289 4,413 1,876 42.5
Operating margin 8.1 % 4.6 % n/a 3.5
       
Nine Months Ended September 30, Increase (Decrease)
2012     2011 $     %
Revenues $ 231,647     $ 266,606 $ (34,959 )     (13.1 )%
Gross profit 48,850 40,292 8,558 21.2
Gross profit margin 21.1 % 15.1 % n/a 6.0
Operating expenses 32,489 37,226 (4,737 ) (12.7 )
Restructuring charges 503 (503 ) n/m
Operating income 16,361 2,563 13,798 538.4
Operating margin 7.1 % 1.0 % n/a 6.1
 

In the third quarter of 2012, North American Water and Wastewater operating income, excluding restructuring charges in 2011, increased by $1.4 million, or 27.9 percent compared to the prior year quarter (non-GAAP). The third quarter of 2012 was the fifth consecutive quarter with improved operating profits and margins from performance in the United States. These margin improvements were achieved despite an 18.3 percent revenue decline as our primary focus is on expanding gross and operating margins through maximizing crew utilization, maintaining strict bidding discipline and increasing higher margin third party tube sales in markets where we lose a bid because of a minimum margin threshold or through a conscious decision not to submit a bid in certain markets. We experienced a 540 basis point improvement in gross margins for the quarter compared to the prior year quarter as a result of our efforts to improve project execution and through our enhanced project management focus.

Operating expenses in this segment decreased by $0.1 million, or 0.7 percent, quarter over quarter, primarily from our continued focus on operational efficiencies and resource management, which included cost reduction initiatives taken in the second half of 2011.

We expect to see continued gross and operating profit and margin improvements from our focused efforts on execution, project management and third party tube sales. This is all in the context of a challenging but stabilized water and wastewater market in the United States.

European Water and Wastewater

    Quarters Ended September 30,     Increase (Decrease)
2012     2011 $     %
Revenues $ 18,748     $ 22,176 $ (3,428 )     (15.5 )%
Gross profit 4,450 5,899 (1,449 ) (24.6 )
Gross profit margin 23.7 % 26.6 % n/a (2.9 )
Operating expenses 3,629 3,941 (312 ) (7.9 )
Restructuring charges 697 (697 ) (100.0 )
Operating income 821 1,261 (440 ) (34.9 )
Operating margin 4.4 % 5.7 % n/a (1.3 )
       
Nine Months Ended September 30, Increase (Decrease)
2012     2011 $     %
Revenues $ 52,343     $ 66,545 $ (14,202 )     (21.3 )%
Gross profit 12,158 16,533 (4,375 ) (26.5 )
Gross profit margin 23.2 % 24.8 % n/a (1.6 )
Operating expenses 10,918 12,252 (1,334 ) (10.9 )
Restructuring charges 697 (697 ) (100.0 )
Operating income 1,240 3,584 (2,344 ) (65.4 )
Operating margin 2.4 % 5.4 % n/a (3.0 )
 

In the third quarter of 2012, our European Water and Wastewater business operating income declined approximately $1.1 million, or 58.1 percent, compared to the third quarter of 2011, excluding restructuring charges (non-GAAP). The decline in this segment was primarily related to deteriorating economic conditions throughout Europe. These decreases were partially offset by improved margins in the Netherlands and slightly increased activity in Switzerland. Operating expenses declined because of cost reduction efforts that were made throughout the region, particularly in the United Kingdom during the fourth quarter of 2011.

We have experienced weaker market conditions throughout Europe during the first nine months of 2012 and we expect these market conditions to persist through the fourth quarter of 2012 and into 2013. However, we anticipate improved performance in the fourth quarter because of our expanded backlog position and current project activity in more favorable countries within the region.

Asia-Pacific Water and Wastewater

    Quarters Ended September 30,     Increase (Decrease)
2012     2011 $     %
Revenues $ 9,018     $ 11,163 $ (2,145 )     (19.2 )%
Gross profit (1,560 ) 1,915 (3,475 ) (181.5 )
Gross profit margin (17.3 )% 17.2 % n/a (34.5 )
Operating expenses 2,011 2,088 (77 ) (3.7 )
Acquisition-related expenses 445 445 n/m
Restructuring charges 173 (173 ) (100.0 )
Operating loss (4,016 ) (346 ) (3,670 ) 1,060.7
Operating margin (44.5 )% (3.1 )% n/a (41.4 )
       
Nine Months Ended September 30, Increase (Decrease)
2012     2011 $     %
Revenues $ 28,369     $ 35,103 $ (6,734 )     (19.2 )%
Gross profit (2,555 ) 5,970 (8,525 ) (142.8 )
Gross profit margin (9.0 )% 17.0 % n/a (26.0 )
Operating expenses 5,782 6,662 (880 ) (13.2 )
Acquisition-related expenses 445 445 n/m
Restructuring charges 173 (173 ) (100.0 )
Operating loss (8,782 ) (865 ) (7,917 ) 915.3
Operating margin (31.0 )% (2.5 )% n/a (28.5 )
 

In the third quarter of 2012, our Asia-Pacific Water and Wastewater business reported an operating loss, excluding acquisition-related expenses in 2011, of $3.6 million (non-GAAP), primarily from continued costs associated with closing out three loss producing projects in our Singapore operation. In the third quarter, as we continued the closeout process, we incurred significantly more costs associated with dig and replace work and additional rehabilitation lines not using our CIPP process, which was required. In addition we incurred additional costs rectifying certain quality issues associated with work previously completed. These costs totaled $1.6 million in the third quarter of 2012. Additionally, in Australia, we experienced decreased margins as we had to mobilize crews to work in other markets because of the lack of work releases and bidding delays in Sydney. Operating expenses declined during the quarter as a result of cost containment efforts throughout the region in response to decreased activity throughout the nine month period.

We expect performance for this segment to significantly improve during the fourth quarter, as we believe we have taken all material losses in Singapore and as we begin work in Malaysia and potentially in Sydney, subject to new project awards.

Commercial and Structural

    Quarters Ended September 30,     Increase (Decrease)
2012     2011 $     %
Revenues $ 19,897     $ 3,665 $ 16,232     442.9 %
Gross profit 9,148 1,541 7,607 493.6
Gross profit margin 46.0 % 42.0 % n/a 4.0
Operating expenses 6,641 1,409 5,232 371.3
Acquisition-related expenses 162 3,080 (2,918 ) (94.7 )
Operating income 2,345 (2,948 ) 5,293 179.5
Operating margin 11.8 % (80.4 )% n/a 92.2
       
Nine Months Ended September 30, Increase (Decrease)
2012     2011 $     %
Revenues $ 55,267     $ 3,665 $ 51,602     1,408.0 %
Gross profit 25,803 1,541 24,262 1,574.4
Gross profit margin 46.7 % 42.0 % n/a 4.7
Operating expenses 18,669 1,409 17,260 1,225.0
Acquisition-related expenses 2,149 3,080 (931 ) (30.2 )
Operating income 4,985 (2,948 ) 7,933 269.1
Operating margin 9.0 % (80.4 )% n/a 89.4
 

We established our Commercial and Structural reporting segment in connection with our August 2011 acquisition of Fyfe North America and expanded this segment with the January 2012 acquisition of Fyfe Latin America and our April 2012 acquisition of Fyfe Asia. There were no Commercial and Structural segment results prior to August 2011.

In the third quarter of 2012, the Fyfe businesses performed in-line with our expectations, with gross margins of 46.0 percent and operating income of $2.5 million, excluding acquisition-related expenses (non-GAAP), but inclusive of $1.2 million of purchase price depreciation and amortization. Fyfe North America’s performance was bolstered by continued high productivity and margins from pipeline projects. Fyfe Latin America contributed $0.3 million in revenues and $0.1 million in operating losses during the quarter. Results were negatively impacted because of project timing delays. Fyfe Asia contributed $3.7 million in revenues and $0.4 million in operating profit, excluding acquisition-related expenses (non-GAAP), during the quarter, which was lower than expected. However, project bidding activity was robust during the quarter. Our fourth quarter expectations for this business have significantly improved because of recent project awards in Singapore and Hong Kong.

Operating expenses for the quarter and nine-month periods ended September 30, 2012 increased $5.2 million and $17.3 million, respectively, compared to the prior year periods, primarily due to the full inclusion of Fyfe’s North America, Asia and Latin America for the 2012 periods. In addition, operating expenses were higher because of our strategic initiatives to develop key end markets supporting the growth plan for the Commercial and Structural platform.

We believe the Fyfe businesses will significantly accelerate the pace of growth they have experienced over the last few years as we integrate all three businesses with our global distribution network, increase our investment in business development, and invest in product innovation to further exploit growth opportunities across several key vertical end markets. We anticipate that the Commercial and Structural segment will provide strong contributions to earnings for the remainder of 2012 and into 2013.

Aegion Corporation is a global leader in infrastructure protection, providing proprietary technologies and services to protect against the corrosion of industrial pipelines and for the rehabilitation and strengthening of water, wastewater, energy and mining piping systems and buildings, bridges, tunnels and waterfront structures. 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, 2011, as filed with the Securities and Exchange Commission on February 28, 2012. 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. The (non-GAAP) earnings per share exclude the earnings impact of acquisition-related expenses, restructuring charges and debt redemption costs. 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® and Fyfe™ are the registered and unregistered trademarks of Aegion Corporation and its affiliates.

               

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except share and per share information)

 
For the Quarters Ended For the Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
 
Revenues $ 265,155 $ 246,218 $ 753,281 $ 681,790
Cost of revenues   202,381         193,589     575,395         542,147  
Gross profit 62,774 52,629 177,886 139,643
Operating expenses 42,917 37,242 126,780 110,601
Earnout reversal (6,892 ) (1,700 ) (6,892 ) (1,700 )
Acquisition-related expenses 607 5,438 2,594 5,764
Restructuring charges           2,151             2,151  
Operating income   26,142         9,498     55,404         22,827  
Other income (expense):
Interest expense (2,523 ) (9,168 ) (7,700 ) (12,827 )
Interest income 86 63 231 199
Other   (213 )       (768 )   (1,259 )       1,013  
Total other expense   (2,650 )       (9,873 )   (8,728 )       (11,615 )
Income (loss) before taxes on income 23,492 (375 ) 46,676 11,212
Tax expense (benefit) on income   4,758         (775 )   11,242         2,027  

Income before equity in earnings of affiliated companies

18,734 400 35,434 9,185
Equity in earnings of affiliated companies   2,001         916     4,389         2,531  
Net income 20,735 1,316 39,823 11,716
Non-controlling interests   (1,191 )       (156 )   (2,057 )       79  
Net income attributable to Aegion Corporation $ 19,544       $ 1,160   $ 37,766       $ 11,795  
 
Earnings per share attributable to Aegion Corporation:
Basic: $ 0.50       $ 0.03   $ 0.96       $ 0.30  
Diluted:   0.49         0.03     0.95         0.30  
 
 
 
Weighted average shares outstanding - Basic 39,285,484 39,424,336 39,253,373 39,347,237
Weighted average shares outstanding - Diluted 39,605,229 39,711,383 39,559,614 39,706,751
 
 

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

For the Quarter Ended September 30, 2012

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

 
                 
Consolidated Acquisition-related Results excluding
results expenses Acquisition-related expenses
 
Revenues $ 265,155 $ $ 265,155
Cost of revenues   202,381         202,381  
Gross profit 62,774 62,774
Operating expenses 43,524 (607 ) 42,917
Earnout reversal   (6,892 )       (6,892 )
Operating income   26,142     607     26,749  
Other income (expense):
Interest expense (2,523 ) (2,523 )
Interest income 86 86
Other   (213 )       (213 )
Total other expense   (2,650 )       (2,650 )
Income before taxes on income 23,492 607 24,099
Tax expense on income   4,758     233     4,991  
Income before equity in earnings of affiliated

companies

18,734 374 19,108
Equity in earnings of affiliated companies   2,001         2,001  
Net income 20,735 374 21,109
Non-controlling interests   (1,191 )       (1,191 )
Net income attributable to Aegion Corporation $ 19,544   $ 374   $ 19,918  
 
Diluted earnings per share:    
Net income $ 0.49   $ 0.50  
 
Weighted average shares outstanding - Diluted 39,605,229 39,605,229
 
 

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

For the Three-Months Ended September 30, 2011

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

                             

Consolidated
Results

   

Restructuring
Charges

   

Acquisition
-related
expenses

   

Prior Debt
Redemption

   

Results
Excluding
one-off items

               
Revenues $ 246,218 $ $ $ $ 246,218
Cost of revenues   193,589                                 193,589  
Gross profit 52,629 52,629
Operating expenses   43,131         (2,151 )       (5,438 )               35,542  
Operating income 9,498 2,151 5,438 17,087
Other income (expense):
Interest income 63 63
Interest expense (9,168 ) (6,811 ) (2,357 )
Other   (768 )                               (768 )
Total other income (loss)   (9,873 )                       (6,811 )       (3,062 )
Income (loss) before taxes on income (375 ) 2,151 5,438 6,811 14,025
Taxes on income (tax benefit)   (775 )       649         1,679         2,457         4,010  
Income before equity in earnings of affiliated companies 400

1,502

3,759

4,354

10,015
Equity in earnings of affiliated companies   916                                 916  
Net income 1,316 1,502 3,759 4,354 10,931
Less: net income attributable to noncontrolling interests   (156 )      

       

       

        (156 )
Net income attributable to common stockholders $ 1,160      

$

1,502

     

$

3,759

     

$

4,354

      $ 10,775  
 
Diluted earnings per share:
Net income $ 0.03 $ 0.27
 
Weighted average number of shares:
Diluted 39,711,383 39,711,383
 
 

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

For the Nine-Month Period Ended September 30, 2012

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

                 
Consolidated Acquisition-related Results excluding
results expenses Acquisition-related expenses
 
Revenues $ 753,281 $ $ 753,281
Cost of revenues   575,395         575,395  
Gross profit 177,886 177,886
Operating expenses 129,374 (2,594 ) 126,780
Earnout reversal   (6,892 )       (6,892 )
Operating income   55,404     2,594     57,998  
Other income (expense):
Interest expense (7,700 ) (7,700 )
Interest income 231 231
Other   (1,259 )       (1,259 )
Total other expense   (8,728 )       (8,728 )
Income before taxes on income 46,676 2,594 49,270
Tax expense on income   11,242     247     11,489  

Income before equity in earnings of affiliated companies

35,434 2,347 37,781
Equity in earnings of affiliated companies   4,389         4,389  
Net income 39,823 2,347 42,170
Non-controlling interests   (2,057 )       (2,057 )
Net income attributable to Aegion Corporation $ 37,766   $ 2,347   $ 40,113  
 
Diluted earnings per share:    
Net income $ 0.95   $ 1.01  
 
Weighted average shares outstanding - Diluted 39,559,614 39,559,614
 
 

AEGION CORPORATION AND SUBSIDIARIES

STATEMENT OF OPERATIONS RECONCILIATION

For the Nine Months Ended September 30, 2011

(Unaudited) (Non-GAAP)

(in thousands, except share and per share information)

                             

Consolidated
Results

   

Restructuring
Charges

   

Acquisition
-related
expenses

   

Prior Debt
Redemption

   

Results
Excluding
one-off items

               
Revenues $ 681,790 $ $ $ $ 681,790
Cost of revenues   542,147                                 542,147  
Gross profit 139,643 139,643
Operating expenses   116,816         (2,151 )       (5,764 )               108,901  
Operating income 22,827 2,151 5,764 30,742
Other income (expense):
Interest income 199 199
Interest expense (12,827 ) (6,811 ) (6,016 )
Other   1,013                                 1,013  
Total other income (expenses)   (11,615 )                       (6,811 )       ( 4,804 )
Income before taxes on income 11,212 2,151 5,764 6,811 25,938
Taxes on income   2,027         649         1,754         2,457         6,887  
Income before equity in earnings of affiliated companies 9,185

1,502

4,010

4,354

19,051
Equity in earnings of affiliated companies   2,531                                 2,531  
Net income 11,716 1,502 4,010 4,354 21,582
Less: net income attributable to noncontrolling interests   79        

       

       

        79  
Net income attributable to common stockholders $ 11,795      

$

1,502

     

$

4,010

     

$

4,354

      $ 21,661  
 
Diluted:
Net income $ 0.30 $ 0.55
 
Weighted average number of shares:
Diluted 39,706,751 39,706,751
 
 

AEGION CORPORATION AND SUBSIDIARIES

SEGMENT DATA

(Unaudited)

(In thousands)

               
Quarters Ended Nine Months Ended
September 30, September 30,
2012     2011 2012     2011
 
Revenues:
Energy and Mining $ 139,674 $ 114,014 $ 385,655 $ 309,871
North American Water and Wastewater 77,818 95,200 231,647 266,606
European Water and Wastewater 18,748 22,176 52,343 66,545
Asia-Pacific Water and Wastewater 9,018 11,163 28,369 35,103
Commercial and Structural   19,897         3,665     55,267         3,665  
Total revenues $ 265,155       $ 246,218   $ 753,281       $ 681,790  
 
Gross profit (loss):
Energy and Mining $ 33,553 $ 27,392 $ 93,630 $ 75,307
North American Water and Wastewater 17,183 15,882 48,850 40,292
European Water and Wastewater 4,450 5,899 12,158 16,533
Asia-Pacific Water and Wastewater (1,560 ) 1,915 (2,555 ) 5,970
Commercial and Structural   9,148         1,541     25,803         1,541  
Total gross profit $ 62,774       $ 52,629   $ 177,886       $ 139,643  
 
Operating income (loss):
Energy and Mining $ 20,703 $ 7,118 $ 41,600 $ 20,493
North American Water and Wastewater 6,289 4,413 16,361 2,563
European Water and Wastewater 821 1,261 1,240 3,584
Asia-Pacific Water and Wastewater (4,016 ) (346 ) (8,782 ) (865 )
Commercial and Structural   2,345         (2,948 )   4,985         (2,948 )
Total operating income $ 26,142       $ 9,498   $ 55,404       $ 22,827  
 
       

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share amounts)

 
September 30, December 31,
2012     2011

Assets

Current assets
Cash and cash equivalents $ 101,314 $ 106,129
Restricted cash 1,634 82
Receivables, net 234,019 228,313
Retainage 32,478 33,933
Costs and estimated earnings in excess of billings 75,251 67,683
Inventories 62,455 54,540
Prepaid expenses and other current assets   32,624       27,305
Total current assets   539,775       517,985
Property, plant & equipment, less accumulated depreciation   182,819       168,945
Other assets
Goodwill 274,531 249,888
Identified intangible assets, less accumulated amortization 158,079 149,655
Investments 26,314 26,680
Deferred income tax assets 5,340 5,418
Other assets   4,971       6,393
Total other assets   469,235       438,034
 
Total Assets $ 1,191,829     $ 1,124,964
 

Liabilities and Equity

Current liabilities
Accounts payable $ 78,940 $ 72,326
Accrued expenses 74,415 69,417
Billings in excess of costs and estimated earnings 22,484 24,435
Current maturities of long-term debt and line of credit   31,030       26,541
Total current liabilities 206,869 192,719
Long-term debt, less current maturities 231,271 222,868
Deferred income tax liabilities 37,198 38,167
Other non-current liabilities   19,080       22,221
Total liabilities   494,418       475,975
 
 

Equity

Common stock, $.01 par – shares authorized 125,000,000; shares issued and outstanding 39,278,955 and 39,352,375, respectively

393 394
Additional paid-in capital 260,139 260,680
Retained earnings 411,562 373,796
Accumulated other comprehensive income   9,728       5,862
Total stockholders' equity 681,822 640,732
Non-controlling interests   15,589       8,257
Total equity   697,411       648,989
 
Total Liabilities and Equity $ 1,191,829     $ 1,124,964
 
   

AEGION CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

 
For the Nine Months
Ended September 30,
2012     2011
   

Cash flows from operating activities:

Net income $ 39,823 $ 11,716
Adjustments to reconcile to net cash provided by (used in) operating activities:
Depreciation and amortization 29,117 26,234
Gain on sale of fixed assets (246 ) (363 )
Equity-based compensation expense 5,246 5,494
Deferred income taxes (1,900 ) (3,035 )
Equity in earnings of affiliated companies (4,389 ) (2,531 )
Write-off of unamortized debt issuance costs 1,043
Reversal of earnout (6,892 ) (1,700 )
(Gain) loss on foreign currency transactions 138 (1,426 )
Other (544 ) (1,841 )
Changes in operating assets and liabilities:
Restricted cash (1,552 ) 600
Return on equity of affiliated companies 5,002 5,415
Receivables net, retainage and costs and estimated earnings in excess of billings 1,684 (42,127 )
Inventories (6,538 ) (4,836 )
Prepaid expenses and other assets (2,120 ) 830
Accounts payable and accrued expenses 90 1,011
Other operating   1,773         (3,523 )
Net cash provided by (used in) operating activities   58,692         (9,039 )
 

Cash flows from investing activities:

Capital expenditures (34,712 ) (16,075 )
Proceeds from sale of fixed assets 3,399 653
Patent expenditures (420 ) (967 )
Receipt of cash from Hockway sellers due to final net working capital adjustments 1,048
Purchase of Fyfe Latin America, net of cash acquired (3,048 )
Purchase of Fyfe Asia, net of cash acquired (39,415 )
Payment to Fyfe NA sellers for final net working capital adjustments (532 )
Purchase of Hockway, net of cash required (4,004 )
Purchase of Fyfe NA, net of cash required (114,690 )
Purchase of CRTS, net of cash acquired           (23,639 )
Net cash used in investing activities   (73,680 )       (158,722 )
 

Cash flows from financing activities:

Issuance of common stock upon stock option exercises, including tax benefit 840 3,551
Issuance of common stock in connection with acquisition of Fyfe NA 4,000
Investments from noncontrolling interests 4,939 301
Distributions/dividends to noncontrolling interests (2,006 )
Repurchase of common stock (6,354 )
Proceeds on notes payable 5,608 35
Principal payments on notes payable (890 ) (1,112 )
Proceeds from line of credit 26,000
Proceeds from long-term debt 983 250,000
Principal payments on long-term debt (18,750 ) (97,500 )
Debt issuance costs (4,046 )
Other financing activities           (269 )
Net cash provided by financing activities   12,376         152,954  
Effect of exchange rate changes on cash   (2,203 )       (3,282 )
Net decrease in cash and cash equivalents for the period (4,815 ) (18,089 )
Cash and cash equivalents, beginning of period   106,129         114,829  
Cash and cash equivalents, end of period $ 101,314       $ 96,740  

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