cjs securities
TRANSCRIPT
CJS Securities16th Annual New Ideas for the New Year
January 13, 2016
Safe Harbor
1
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward looking statements. The Company makes forward-looking statements in this presentation that represent the Company’s beliefs or expectations about future events or financial performance. These forward-looking statements are based on information currently available to the Company and on management’s beliefs, assumptions, estimates and projections and are not guarantees of future events or results. When used in this presentation, 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the Securities and Exchange Commission on March 2, 2015 and in the Company’s subsequent Quarterly Reports on Form 10-Q. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. In addition, the Company’s actual results may vary materially from those anticipated, estimated, suggested or projected. Except as required by law, the Company 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 the Company from time to time in its 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 the Company in this presentation are qualified by these cautionary statements.
In addition, some of the market and industry data and forecasts included in this presentation are based upon independent industry sources. Although we believe that these independent sources are reliable, we have not independently verified the accuracy and completeness of this information.
Aegion®, Insituform®, the Aegion® logo, United Pipeline Systems®, Bayou Companies®, Corrpro®, Fyfe®, Fibrwrap®, Tyfo®, Brinderson®, CRTS®, CCSI®, Schultz™ and our other trademarks referenced herein are the registered trademarks of Aegion Corporation and its affiliates.
Underground Solutions® is the registered trademark of Underground Solutions, Inc.
INFRASTRUCTURE SOLUTIONS CORROSION PROTECTION ENERGY SERVICES
Primary Markets
Municipal Water/Wastewater,
Industrial PipelinesOil, Gas, Mining Pipelines
Refineries, Upstream Facilities, Water Treatment Plants, Industrial Facilities
Revenues
$421.2 millionLevel with prior year period(includes revenues from restructured
markets in prior year period)
$329.2 millionLevel with prior year period
$252.5 million+11.8%
AdjustedOp Income
$43.6 million
+53.8%
$8.8 million
-49%
$4.9 million
-54.2%
AdjustedOp Margin
10.3%
+360 bps
2.7%
-250 bps
1.9%
-280 bps
Areas of strength helped to offset challenging upstreammarkets in the first nine months of 2015
2
Reconciliation of non-GAAP adjusted results can be found in the Appendix
Revenues$1.0B (+2.4%)
Adjusted Operating Income $57.3M (+1.6%)
Non-GAAP EPS$0.92 (+3.4%)
Consolidated
Q4’15 non-GAAP EPS expected to be in line with 2Q’15 results
Infrastructure Solutions gross margin expansion offseta large portion of the impact from lower oil prices
3
15.0%12.7%
YTD Sep '14 YTD Sep '15
Energy ServicesGross Margins
-190 bps
23.7%21.4%
YTD Sep '14 YTD Sep '15
Corrosion ProtectionGross Margins
-230 bps
23.6% 25.8%
YTD Sep '14 YTD Sep '15
Infrastructure SolutionsGross Margins
+220 bps
• Insituform North America expanded gross margins
• Fyfe/Fibrwrap gross margins exceeded 40%
• Infrastructure Solutions benefited from the 2014 Restructuring activities in the affected international markets
• Gross margins for United Pipeline Systems were down significantly because of reduced spending in the North America upstream market
• Delayed work releases and later start of large AC mitigation project in Canada negatively impacted margins in the third quarter
• Significant margin difference between current lower margin onshore project in Chile and the higher margin offshore Saudi Aramco Wasit project completed in 2014
• Gross margins below 15% target:‒ Downstream margins met expectations on
increased maintenance services and turnaround activity
‒ Reduced upstream volume compressed margins
• Gross margins improved in the Permian Basin due to improved execution and proper resource allocation to match project activity
Executing well in a strong market environment
Challenging upstream market conditions Favorable downstream market contrasts with upstream challenges
Infrastructure Solutions enhances customer solutions with addition of Underground Solutions the pressure pipe rehabilitation market
4
Markets
Global municipal water, wastewater, and industrial pipelines, commercial buildings and other infrastructure in North America, Asia and Europe
Services
Wastewater pipeline rehabilitation, pressure pipe rehabilitation and strengthening, seismic protection, building change of use, structural strengthening for aging bridges and waterfront rehabilitation and storm surge
PLATFORM STRENGTHSStrategic InitiativesMaintain market leadership position in North America wastewater pipeline rehabilitation market; improve productivity; enhance go-to-market strategies; and expand technology offerings in the pressure pipe rehabilitation market
Insituform Strengths• Mature business, well managed through a strong performance culture
• Excellent execution, high-quality CIPP products and strong cash flow
• Market-leader, lowest cost position and name recognition
Fyfe/Fibrwrap Strengths• A growth business at attractive margins with Tyfo®/Fibrwrap® fiber-
reinforced polymer technology well-suited in the large diameter water pressure pipe and commercial and transportation structural rehabilitation markets
• Highly engineered technology solution
• Strong brand recognition and market-leading position
NEW! Underground Solutions Strengths• A growth business at attractive margins with a patented fusible PVC
pipe technology to primarily rehabilitate water and wastewater pressure pipelines
Underground Solutions’ patented trenchlesstechnology effectively rehabilitates pressure pipe
5
Fusible PVC PipeFusible PVC pipe is backed by patented technologies for the manufacturing and field pipe joining of PVC pipe for pressure and non-pressure applications, primarily in North America
Value Proposition• Low profile restrained joint
• Fusible PVC requires less pipe volume and weight compared to high-density polyethylene (HDPE) alternative
• Connections with fusible PVC can be easily accomplished with industry standard couplings and fittings
Business ModelProvides PVC pipe and pipe fusion technical services
• Outsource manufacturing of the patented formulation of the PVC material and contract installation of the fused PVC solution
• Proprietary pipe fusion is typically self-performed
Acquisition EconomicsPurchase Price• $85 million in cash
• ~$5 million for tax benefit net operating loss carry forwards (current present value)
2016 Expectations• $50 million in revenues
• Gross margins of 40%+
• >10% operating margins1
Aegion PortfolioApproximately $90 million in annual revenues in pressure pipe market for Underground Solutions, Insituform and Fyfe/Fibrwrap
1 includes a preliminary estimate for amortization of purchased intangibles
Acquisition expected to close during the first quarter of 2016
47%
11%
20%
22%
Underground Solutions expands Aegion’s presencein the North American pressure pipe market
6
$1.5 to 1.8 billion market for water pressure pipe trenchless solutions2015-2019 estimated growth CAGR of mid to high single digits
CIPP=cured-in-place pipe
Other category includes fiber-reinforced polymers, fold/form, sliplining , upsizing and horizontal directional drilling
CIPP
Spray-on
Pipe Bursting
Other
Sources: Global Water Intelligence (2015 and 2011), BCC Research
Pipe bursting, sliplining and HDD
Cured-in-place pipe
Fiber-reinforced polymers
Primary Market SegmentsAegion expands annual revenues from approximately $40 million to $90 million
Underground Solutions provides its patented PVC pipe and performs pipe fusion in most cases
Corrosion Protection to focus on asset integrity management
7
Markets
Oil, gas and mining pipelines, storage tanks and other structures
Services
Pipeline corrosion monitoring and prevention, internal flow assurance, corrosion protection coatings, thermal insulation coatings, protective linings for highly corrosive and abrasive flows
Strategic Initiatives• Use Corrpro’s scale and expertise in corrosion engineering to assemble a
broader suite of technologies and services to effectively manage the asset integrity of midstream pipelines
• Enhance platform technologies and go-to-market strategies to provide broader solutions to oil, gas and mining customers
• Target new markets over time with long-term pipeline infrastructure investments
Corrosion Protection Strengths• Market-leading technologies and services
• Participates in attractive longer-term end markets for pipeline protection technologies and services in North America, the Middle East and South America
• Long-term goal to expand margins through adding midstream services and a return to growth in project-based activities
• Opportunities for collaborative sales effort in all geographic markets
• Engineering expertise to protect pipelines
PLATFORM STRENGTHS
Corrosion Protection platform has market-leading pipe protection technologies
8
MARKET DYNAMICS
Global pipeline development/maintenance remains critical for customers
U.S. safety & environmental regulations should increase spending
MARKET DYNAMICS
Future recovery of oil and gas demand expected to drive onshore and offshore pipeline development, which require efficient corrosion prevention field coatings
MARKET DYNAMICS
Future recovery of oil, gas and mineral demand expected to drive investment and the need for linings to protect pipelines from highly corrosive and/or abrasive flows
Pipe Linings Coating Services Pipe Coatings Corrosion Engineering
United Pipeline SystemsHIGH-DENSITY POLYETHYLENE
CRTSINTERNAL FIELD JOINT
COATING
BayouINTERNAL COATING
CCSIEXTERNAL FIELD JOINT
COATING BayouEXTERNAL COATING
BayouCONCRETE COATING
Bayou/WascoINSULATION COATING
CorrproCATHODIC PROTECTION
Products:Corrpro® engineering design, maintenance, monitoring and installation of cathodic protection systems
Advantage: Industry leader in corrosion prevention with significant scale
Geography: North America, the Middle East, Europe
Competitors: Numerous small companies or regional competitors
MARKET DYNAMICS
Several significant discoveries in the Gulf of Mexico provide a source of supply to meet future demand for oil
Products:Bayou® FBE, 3-layer polyethylene, 3-layer polypropylene, 5-layer glass syntactic polyurethane, concrete, insulation, rubberized asphalt
Advantage: Full service facilities in Louisiana
Geography:U.S. Gulf Coast Region
Competitors: Bredero Shaw and pipe mills producing small-diameter pipe
Products:United Pipeline Systems® Tite Liner®, a high density polyethylene (HDPE) lining system
Advantage: Proprietary and highly efficient installation methods
Geography: North and South America, the Middle East, North Africa, Australia, South Africa
Competitors:Unprotected steel, minimal protection coatings or other HDPE linings and exotic metals or thicker linings
Products:CRTS® robotics for offshore internal pipe seam inspecting, cleaning and anti-corrosive epoxy coating application; CCSI™ onshore custom field coatings
Advantage: Cost savings from fast and efficientpatented offshore robotics technology
Geography: North and South America, the Middle East
Offshore Competitors:No pipe weld coatings or onshore application
Energy Services provides high-quality maintenanceservices with industry leading safety programs
9
Strategic Initiatives• Leverage strong customer relationships in the US West Coast
downstream refining market by offering higher-margin services, including Aegion technologies and services
• Look for opportunities to expand to the upstream Permian Basin market and refining/petrochemical markets in the Gulf Coast, Canada and Utah
Energy Services Strengths• High-quality maintenance, engineering and small capital construction
services; utilizes productivity improvement tools to optimize customer expenditures
• Best-in-class safety culture
• Experienced leader with industry knowledge, expertise and strong customer relationships focused on improving facility productivity
• Increases Aegion’s sources of recurring revenues through long-term maintenance contracts
Markets
North American downstream refining and petrochemical and upstream oil and gas extraction and
Services
Mechanical, electrical and instrumentation maintenance, small capital construction, engineering, cost saving productivity tools
PLATFORM STRENGTHS
Why Aegion?
10
Maintain, rehabilitate and strengthen pipelines
BEFORE disaster strikes
Wastewater
The world depends on pipelines
Oil, Gas and Mining Water Pressure Pipes
Downstream and upstream facilities are needed to meet growing U.S. energy requirements Exploration and ExtractionRefining and Petrochemical
Maintain, engineer and construct projects
THAT KEEP these assets running at peak efficiencies
OUR PRIMARY MARKETS WHAT WE DOTHE NEED
> 75% (of consolidated revenues)
Aegion keeps infrastructure working better, safer and longer throughout the world
11
UPSHIGH-DENSITY POLYETHYLENE
CRTSINTERNAL
FIELD JOINT COATING
BayouINTERNAL COATING
CCSIEXTERNAL
FIELD JOINT COATING
BayouEXTERNAL COATING
BayouCONCRETE COATING
Bayou/WascoINSULATION
COATING
CorrproCATHODIC
PROTECTION
CORROSION PROTECTIONOil, Gas, Mining Pipelines
INFRASTRUCTURE SOLUTIONS Municipal Water/Wastewater,
Industrial Pipelines
< 25% (of consolidated revenues)
ENERGY SERVICESRefineries, Upstream Facilities,
Water Treatment Plants, Industrial Facilities
CorrproCATHODIC
PROTECTION
Fyfe/FibrwrapFIBER-REINFORCED
POLYMER
Brinderson and Shultz
FACILITY MAINTENANCE
InsituformCURED-IN-PLACE-PIPE
Fyfe/FibrwrapFIBER-REINFORCED
POLYMER
PIPELINES INDUSTRIAL FACILITIES
Percent consolidated revenue breakdown is based on 2016 estimates
53%
8%
19%
18%
3%
46%
17%
19%
16%
2%
12
Aegion rebalancing earnings profile in light of persistent low oil prices
2014
Not Related to Oil & Gas
Upstream
Midstream
Mining
Impacted by depressed oil prices
Downstream
2016 EXPECTATION
Not Related to Oil & Gas
Upstream
Midstream
Downstream
Mining
Approximately 60% of consolidated revenues typically come from recurring sources
Actions taken reduce upstream revenues by approximately $100 million
Underground Solutions expected to add
approximately $50 million in revenues
Aegion’s energy exposure in favorable downstream and midstream markets
13
Facility maintenance programs
Turnaround planning and execution
EPC services
Corrosion engineering and cathodic protection of facility structures
Corrosion and abrasion protection for pipe gathering and extraction supply lines
DOWNSTREAM Processing and Refining
ENERGY SERVICES PLATFORM
Cathodic protection
Engineering inspection services
Pipelining and maintenance
New pipe coatings
Pipeline field coatings
MIDSTREAM Transport
CORROSION PROTECTION PLATFORM
ENERGY SERVICES PLATFORM
UPSTREAM Exploration and Production
CORROSION PROTECTION PLATFORM
ENERGY SERVICES PLATFORM
AEGION ENERGY-RELATED REVENUES(Based on 2016 estimated revenues)
8% 19% 18%
Facility maintenance programs
Engineering, procurement and construction (EPC) services
Terminal facility maintenance
EPC services
Aegion reducing upstream market exposure
14
Lower expected capital spending particularly in high cost extraction markets such as Canada and Central California
Upstream markets
Need differentiated technologies and services
United Pipeline Systems and Coating Services are challenged, but remain profitable during current down cycle
‒ Bayou’s application of an innovative insulation technology to be used for Shell Appomattox project
Downsize Energy Services’ operations
Continue to support key customers while addressing reduced demand in Central California
Midstream market remains favorableBenefits Corrpro’s corrosion engineering and cathodic protection expertise although risk is now greater for project delays and possible cancellation of new pipeline construction 1 Perma-Pipe is a subsidiary of MFRI, Inc.
Internal Energy Market Assessment
Aegion’s Actions
Sell 51% equity stake in Bayou Perma-Pipe Canada
Sale of BPPC to joint venture partner MFRI, Inc. for approximately US $9 million1
Right-size Corrosion Protection’s operations
Compete more effectively in a challenging North American energy market
Reduce corporate and other operating costs
Aegion expects to complete all actions during the first quarter of 2016
Aegion expects the North America midstream market to modestly increase pipeline construction and maintenance spend in 2016
• Pipelines remain the most efficient method to transport hydrocarbons
‒ New infrastructure is needed to transportproduct to market
• However, persistent low oil prices increases risk of project delays and possible cancellation of new pipeline construction activities
Corrosion Protection’s Corrprobusiness is well positioned given its scale
and expertise in corrosion engineering and cathodic protection systems
North American midstream pipeline market remains favorable
15
Current Shale PlaysProspective Shale Plays
Basins
Restructuring to reposition Aegion’s upstreamexposure and reduce annual costs
16
Pre-Tax($ Millions)
Cash Charges $6.0 to $7.0
Non-Cash charges $1.0 to $2.0
Total restructuring charges $7.0 to $9.0
Aegion will soon complete a detailed review of approximately $150 million in certain intangible assets, including goodwill, within the Energy Services and Corrosion Protection reporting segments, which may result in an impairment charge
Restructuring to reduce total annual operatingcosts by approximately $15 million, most of which will be realized in 2016
Aegion RestructuringEstimated charges to be recorded in the first quarter of 2016
60.00
80.00
100.00
120.00
A Focus on Disciplined Financial Management
17
Days Sales Outstanding (DSO)Third Quarter
• Ending cash balance of $167.6 million remains near record high level
• Third quarter cash flow from operating activities:‒ Provided $10 million of cash compared to a
use of $10 million in the prior year period‒ Favorable net change in working capital
from reduced DSOs
• Company focused on significantly improving the billing cycle and cash collections to reduce DSOs on a sustainable basis to 75 days over the next few years
• CAPEX was $9 million compared to $11 million in prior year period due to efforts to reduce CAPEX in challenging markets
‒ Expect full year 2015 CAPEX to be in the range of $30 million
• Fourth quarter is seasonal high period for cash collections
‒ 2015 expected to be a another record year for cash
Third Quarter 2015:23-day reduction to 76 days compared to the second quarter of 2014
Sep-15Dec-14
82-Days
Dec-13
92-Days
Aegion generates substantial cash flow from operating activities
18
$42
$60 $53
$22
$111
$88 $82
$142
2008 2009 2010 2011 2012 2013 2014 2015 TTM(9/30)
181%
87% 82%
204%
171%157%
276%299%
2009 2010 2011 2012 2013 2014 PeerAverage
2015 TTM(9/30)
Cash Flow from Operating Activities as a Percent of non-GAAP Net Income
Cash Flow from Operating Activities ($M)
Aegion2013 cash flow from operating activities includes $4 million for acquisition-related expenses2009 to 2013 restated for discontinued operations
Peer Average: 2015 LTM per S&P Capital IQ
$(0.9) $(0.8) $(0.6) $(0.4) $(0.2)
$0.0 $0.3
$0.9 $1.4
$2.1 $2.2 $2.4
$3.1 $3.1 $3.2
$4.7 $5.2
Primoris Layne Willbros Matrix Furmanite WASEONG MuellerWater
Team WoodGroup
ShawCor Quanta Tetra Tech Aegion Jacobs EMCOR AECOM MasTec
Peer Average(1) = $2.58/share
Source: Company filings and S&P Capital IQ(1) Peer average excludes Aegion and is market cap weighted
Free Cash Flow per Diluted Share(LTM as of the most recent reporting period as of September 30, 2015)
19
Favorable municipal markets and focus on execution support modest revenue growth and improved operating income for Infrastructure Solutions
Continued strong demand for refined oil products provides favorable market conditions for Energy Services to maintain revenues near record 2015 levels dependent on turnaround activities
North American midstream pipeline construction expected to grow modestly, which supports Corrosion Protection’s Corrpro business
Expect a more challenging upstream market
• Reduced upstream activity to impact Corrosion Protection revenues and profits, especially Bayou Louisiana because of low backlog entering 2016 ahead of the Appomattox contract
‒ Decision to exit Canadian pipe coating market reduces annual revenues by approximately $30 million
• Energy Services’ upstream revenues to decline by approximately $70 million due to reduced customer demand in Central California
Aegion estimated 2016 non-GAAP earnings per share to bein line with expectations for full year results in 2015
Current low oil prices expected to persist for some time
Aegion strategic actions• Underground Solutions expected to contribute $50 million in revenues with > 10% operating margins• Restructuring to reduce annual operating costs by approximately $15 million
2016 outlook excludes possible contribution in the fourth quarter from the Shell Appomattox pipe coating contract
20
1 32INFRASTRUCTURE SOLUTIONS
• Maintain leadership position in the wastewater market
• Expand offerings in the water pressure pipe market
• Extend positive momentum achieved in 2015 with Fyfe/Fibrwrap business
ENERGY SERVICES
• Leverage strong customer relationships in the West Coast downstream market by offering higher-margin services
CORROSION PROTECTION
• Assemble a suite of technologies and services to better manage the asset integrity of the growing midstream pipeline market
Aegion Is…
21
1 2 3 4A DIVERSIFIED growth
and return oriented company pursuing
attractive opportunities in sustainable end markets
A company with OPPORTUNITIES in the U.S. midstream,
downstream and upstream energy markets and an energy portfolio now
BALANCED toward recurring revenues
An established global LEADER in water and wastewater pipeline rehabilitation with
a leading technology to rehabilitate and
strengthen other urban infrastructure
An execution-driven company leveraging its
scale and leading market positions for best in class PROJECT MANAGEMENT across the organization
2
Appendix
22
Price=$131M
Independent pipe coating facility in Louisiana serving the Gulf Coast oil and gas industry
Aegion was formed in 2011 as a result of the diversification strategy
A-1
First commercial installation of Insituform® cured-in-place pipe (CIPP) completed in London
1980Insituform North America created and public offering of stock issued
United Pipeline Systems acquired to offer pipe lining solutions to oil, gas and mining industries
19
71
-20
00
ESTABLISHED LASTING CIPP LEADERSHIP
20
09
Price=$92M
A leading corrosion engineering and cathodic protection business in the midstream pipeline market
20
11
-20
12
DIVERSIFICATION STRATEGY
Price=$5M
Middle East corrosion engineering and cathodic protection business
20
13
Price=$159M
Fiber-reinforced polymer technology to rehabilitate pipelines, commercial and transportation structures
Price=$142M
P/EBITDA1=6x to 6.5x
Oil and gas upstream and downstream facility maintenance, engineering, small capital construction and turnaround services in U.S. West Coast market
RECURRING REVENUES EXECUTION-FOCUSED
2011/2012
2011
Price=$26M
Robotic interior weld inspection and coating technology
1991
2011
1971
INFRASTRUCTURE SOLUTIONS CORROSION PROTECTION ENERGY SERVICES
BRANDS
MARKET EXPERTISE
• Insituform has been a global leader for 45 years; over 3,200 municipal relationships in North America
• Fyfe/Fibrwrap has over 20 years of experience; product certifications and intellectual property
• Decades of experience in corrosion and pipe protection and engineering for the oil, gas and mining markets
• Brinderson has long-term maintenance contracts and strong customer relationships
• Schultz provides skilled building trade labor
BEST-IN-CLASSSAFETY
2014• TRIR: 1.2 (national average: 4.0)
• LTIR: 0.39 (national average: 2.1)
LEADING TECHNOLOGY
• InsituMain®; InsituGuard®; iPlus®
• Tyfo®; Fibrwrap®
• Tite Liner®
• ID, OD and custom coating, concrete weight coating and insulation
• Internal robotic field joint coating
• Field services
• Corrpower®; Green Rectifier®
• DelayTrak™ & TimeTrak™for measuring productivityand project controls
VERTICALLY INTEGRATED
• Engineering
• Largest and most productive CIPP manufacturing facility
• Crew-based installer
• Engineering
• Design
• Installation/application/testing
• Engineering, procurement, fabrication, constructionand maintenance integrated solutions
Aegion’s success is built on market-leading technologies and services
A-2
2014• TRIR: 0.53 (national average: 4.1)• LTIR: 0.04 (national average: 1.74)
2014• TRIR: 0.24 (national average: 3.8)• LTIR: 0.03 (national average: 1.5)
A-3
Aegion’s core competencies cross all platforms
Infrastructure Integrity Over 300 engineers experienced in extending asset design life
• Industrial asset management
• Pipe, commercial building and other asset strengthening
• High-quality, long-lasting customer solutions
Customer IntimacyFocus facilitates growth
• Industry leading safety programs
• Understanding of municipal, oil, gas and mining industry dynamics
• Strong brand recognition supports expansion of newer technologies
into new markets
• Strong customer relationships and
global reach creates solid
foundation/platform for growth
ManufacturingVertical integration yields market advantages
• Emphasis on product development and intellectual property
• Proprietary resin and epoxy formulations
• Manufacturing engineered solutions
• Custom design manufacturing and installation equipment
• ISO certified processes
Corrosion and Abrasion Protection Comprehensive solutions for rehabilitating and protecting infrastructure
• Non-disruptive technologies and services
• High-density polyethylene (HDPE) pipe lining system
• Corrosion prevention cathodic protection technologies
• Base and specialized pipeline coatings and insulation services
• Cured-in-place pipe (CIPP) and fiber-reinforced polymer (FRP)
solutions for pipelines, bridges and waterfront structures
• Front end engineering design and construction
Aegion amended and restated its $650 million Credit Facility to secure favorable interest rates and enhance financial flexibility
A-4
Aegion Credit FacilityExtends maturity of the facility from July 2018 to October 2020
• $300 million line of credit• $350 million five-year term loanInterest rate charges on principal amounts outstanding at LIBOR + 1.25% to 2.25%, depending on consolidated leverage ratio
Term LoanCompany drew the entire term loan to retire $344.7 million in outstanding debt and fund the transaction expenses
Interest Rate SwapEntered into an interest rate swap arrangement to fix the interest rate at approximately 3.46% on 75% of the term loan through maturity (October 2020)
Increased Share Repurchase AuthorizationWhile the Company’s leverage ratio is above 2.5 to 1
• Authorization up to $20 million beginning in the fourth quarter of 2015
• Beginning in 2016, annual authorization up to $40 million compared to $20 million under the old credit facility
On November 4, 2015, Aegion announced that its Board of Directors authorized a new share repurchase program to repurchase up to $20 million of the Company’s common stock through June 30, 2016
Non-GAAP reconciliation from continuing operations for the first nine months of 2015
A-5
(1) Includes the following non-GAAP adjustments: (i) pre-tax restructuring charges for cost of revenues of $2,643 related to the write-off of certain other assets; (ii) pre-tax restructuring charges for operating expenses of $4,190 related to reserves for potentially uncollectable receivables, early lease termination costs, and other restructuring charges; (iii) pre-tax restructuring charges of $1,034 related to severance and benefit related costs in accordance with ASC 420, Exit or Disposal Cost Obligations, and recorded as “Restructuring charges” in the Consolidated Statements of Operations; and (iv) charges of $2,862 related to the write-off of certain other assets, including the loss on the sale of the CIPP contracting operation in France.
(2) Includes the following non-GAAP adjustments: (i) expenses incurred in connection with the Company’s acquisition of Schultz Mechanical Contractors, Inc.; and (ii) other potential acquisition activity pursued by the Company during the period.
(3) Includes non-controlling interests.
(in USD thousands, except margins and per share information)
As Reported
(GAAP)
Restructuring &
Impairment1
Acquisition-
Related
Expenses2
As Adjusted
(Non-GAAP)
Cost of Revenues 794,493$ (2,643)$ -$ 791,850$
Gross Profit 208,364 2,643 - 211,007
Operating Expenses 157,964 (4,190) - 153,774
Acquisition-Related Charges 780 - (780) -
Restructuring Charges 1,034 (1,034) - -
Operating Income 48,586 7,867 780 57,233
Interest Expense (9,365) 126 - (9,239)
Other Income/(Expense) (2,360) 2,736 - 376
Income before Taxes 37,090 10,729 780 48,599
Taxes on Income 11,647 1,917 313 13,877
Income
(attributable to Aegion Corporation)3
24,793$ 8,812$ 467$ 34,072$
Diluted Earnings per Share $0.67 $0.24 $0.01 $0.92
All financial data presented is from continuing operations
Infrastructure Solutions platform first nine months non-GAAP reconciliation
A-6
(1) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with the write-off of certain other assets, reserves for potentially uncollectable receivables, early lease termination costs, severance and benefit related costs, and other restructuring charges.
(2) Includes non-GAAP adjustments related to pre-tax restructuring charges associated with inventory obsolescence, reserves for potentially uncollectable receivables and write-off of certain other assets and accrued expenses.
(in USD thousands)
As-Reported
(GAAP) Adjustments1
As Adjusted
(Non-GAAP)
As-Reported
(GAAP) Adjustments1
As Adjusted
(Non-GAAP)
Infrastructure SolutionsRevenues 421,170$ -$ 421,170$ 422,212$ -$ 422,212$
Cost of Revenues 315,096 (2,643) 312,453 326,148 (3,602) 322,546
Gross Profit 106,074 2,643 108,717 96,064 3,602 99,666
Operating Expenses 69,339 (4,190) 65,149 85,459 (14,117) 71,342
Acquisition-Related Charges - - - - - -
Restructuring Charges 1,034 (1,034) - - - -
Operating Income 35,701$ 7,867$ 43,568$ 10,605$ 17,719$ 28,324$
Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014
Corrosion Protection platform first nine months non-GAAP reconciliation
A-7
(in USD thousands)
As-Reported
(GAAP) Adjustments1
As Adjusted
(Non-GAAP)
As-Reported
(GAAP) Adjustments2
As Adjusted
(Non-GAAP)
Corrosion ProtectionRevenues 329,157$ -$ 329,157$ 331,088$ -$ 331,088$
Cost of Revenues 258,846 - 258,846 264,071 (11,338) 252,733
Gross Profit 70,311 - 70,311 67,017 11,338 78,355
Operating Expenses 61,531 - 61,531 61,038 - 61,038
Definite-lived Intangible Asset Impairment - - - 10,896 (10,896) -
Acquisition-Related Charges 457 (457) - 197 (197) -
Restructuring Charges - - - - - -
Operating Income 8,323$ 457$ 8,780$ (5,114)$ 22,431$ 17,317$
Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014
(1) Includes non-GAAP adjustments related to expenses incurred in conjunction with potential acquisition activity pursued by the Company during the period.
(2) Includes non-GAAP adjustments related to (i) pre-tax restructuring and impairment-related charges for Bayou’s operation for the write-down of long-lived assets and the impairment of definite-lived intangible assets; and (ii) expenses incurred in conjunction with potential acquisition activity pursued by the Company during the period.
Energy Services platform first nine months non-GAAP reconciliation
A-8
(1) Includes non-GAAP adjustments related to expenses incurred in conjunction with the Company’s acquisition of Schultz Mechanical Contractors, Inc. during the period.
(2) Includes non-GAAP adjustments related to expenses incurred in conjunction with the Company’s acquisition of Brinderson, L.P. during the period.
(in USD thousands)
As-Reported
(GAAP) Adjustments1
As Adjusted
(Non-GAAP)
As-Reported
(GAAP) Adjustments2
As Adjusted
(Non-GAAP)
Energy ServicesRevenues 252,530$ -$ 252,530$ 225,940$ -$ 225,940$
Cost of Revenues 220,551 - 220,551 192,101 - 192,101
Gross Profit 31,979 - 31,979 33,839 - 33,839
Operating Expenses 27,094 - 27,094 23,169 - 23,169
Acquisition-Related Charges 323 (323) - 342 (342) -
Restructuring Charges - - - - - -
Operating Income 4,562$ 323$ 4,885$ 10,328$ 342$ 10,670$
Nine Months Ended September 30, 2015 Nine Months Ended September 30, 2014