Aegion Corporation Increases Third Quarter Non-GAAP Earnings Per Share by 85 Percent to $0.50 on Str
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
ST. LOUIS--(BUSINESS WIRE)-- 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."
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 $4.8 million use of cash.
AEGION CORPORATION AND SUBSIDIARIES
(Unaudited in millions)
|Energy and Mining||$||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|
|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.
Energy and Mining
|Quarters Ended September 30,||Increase (Decrease)|
|Gross profit margin||24.0||%||24.0||%||n/a||—|
|Reversal of earnout||(6,892||)||(1,700||)||(5,192||)||(305.4||)|
|Nine Months Ended September 30,||Increase (Decrease)|
|Gross profit margin||24.3||%||24.3||%||n/a||—|
|Reversal of earnout||(6,892||)||(1,700||)||(5,192||)||(305.4||)|
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)|
|Gross profit margin||22.1||%||16.7||%||n/a||5.4|
|Nine Months Ended September 30,||Increase (Decrease)|
|Gross profit margin||21.1||%||15.1||%||n/a||6.0|
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