Aegion Corporation (Nasdaq Global Select Market: AEGN) today announced
several actions to deliver sustainable growth and address the market
realities in the North American energy markets. Management will host a
conference call on January 5, 2016 at 10:30 AM eastern standard time to
discuss these strategic actions in more detail.
Charles R. Gordon, Aegion’s President and Chief Executive Officer, said,
“In today’s challenging business environment, we are continually
evaluating our exposure to the end markets we serve. To that end, we
announced an investment in our capabilities to rehabilitate pressure
pipelines for water and wastewater applications by acquiring Underground
Solutions, Inc., an established provider of a patented fusible PVC
technology, and to improve Fyfe’s global reach by acquiring the
remaining international rights from Fyfe Group, LLC. In addition, we are
divesting our equity stake in Corrosion Protection’s Canadian pipe
coating joint venture, downsizing Energy Services’ operations in Central
California’s upstream market and implementing a plan to reduce annual
operating expenses across Aegion.”
Aegion’s Infrastructure Solutions platform adds to its capabilities
Aegion has executed a definitive agreement to acquire Underground
Solutions, Inc. for $85 million in cash and expects to close the
transaction during the first quarter of 2016. The Company will
separately pay for the discounted value of tax benefits (estimated today
to be approximately $5 million) associated with Underground Solutions’
net operating loss carry forwards at closing. Aegion will fund a
substantial portion of the purchase price with existing cash and the
remainder from borrowings against the Company’s line of credit. Aegion
expects the transaction to be accretive to 2016 GAAP earnings per share
with revenues of approximately $50 million and operating margins in
excess of 10 percent. Several key members of Underground Solutions’
senior management, who average more than 20 years of industry
experience, will join Aegion to form an expanded team dedicated to
trenchless rehabilitation of existing pressure pipelines.
Underground Solutions’ patented fusible polyvinyl chloride (“PVC”)
products focus on the rehabilitation of pressure pipelines, primarily in
North America. Underground Solutions uniquely complements Infrastructure
Solutions’ existing pressure pipe rehabilitation technologies InsituMain®,
InsituGuard® and Tyfo®/Fibrwrap® and
increases Aegion’s presence in the pressure pipe market to nearly $90
million in annual revenues.
“We are pleased to have Underground Solutions join Aegion,” Mr. Gordon
commented. “Our market research suggests assembling a portfolio of
technologies is the right strategy to establish a leading position in
the North American pressure pipe rehabilitation market. We believe the
combination of Underground Solutions’ patented PVC technologies with our
Insituform® and Tyfo®/Fibrwrap®
technologies will allow us to strengthen our position in this attractive
market by offering our customers a broader portfolio of solutions.”
In a separate action to continue the recent momentum in the Fyfe
business, the Company signed a definitive agreement with Fyfe Group, LLC
to acquire the legal rights to products, contract installation,
intellectual property and licensing agreements in key international
markets not previously purchased by Aegion for approximately $3 million.
The transaction is expected to close during the first quarter of 2016
and will allow the Company to expand third party product sales across 72
countries in Europe, Africa and the Middle East.
Aegion to reduce its exposure in the North American upstream market
Following a recent assessment of its energy-related businesses, Aegion
concluded the persistent low price of oil is expected to create market
challenges for the foreseeable future and that the high-cost upstream
oil markets it serves in California and Canada will be particularly
difficult as customers further reduce expenditures in 2016. In light of
expectations for a prolonged low oil price environment, Aegion will
reduce its exposure in the North American upstream market by
approximately $100 million in annual revenues through two specific
actions. First, Aegion has entered into a definitive agreement to sell
its 51 percent interest in Bayou Perma-Pipe Canada, Ltd, a pipe coatings
company in Western Canada, to its joint venture partner MFRI, Inc. for
approximately US $9 million. Aegion expects the transaction to close
during the first quarter of 2016. Second, the Company will downsize
Energy Services’ upstream operations in Central California due to
reduced customer demand while continuing to support the remaining
customers in the region with its high-quality services and industry
leading safety programs.
The Company will also implement a restructuring plan approved by
Aegion’s Board of Directors to reduce consolidated annual expenses by
approximately $15 million, most of which will be realized in 2016. The
restructuring will reposition Energy Services’ upstream operations in
California, right-size the Corrosion Protection platform to compete more
effectively and reduce corporate and other operating expenses.
Management intends to complete the cost reductions and record a majority
of an estimated $7 to $9 million in pre-tax charges, most of which are
cash charges, during the first quarter of 2016. The pre-tax charges
primarily consist of employee severance, extension of benefits,
employment assistance programs, early lease termination and other
non-cash costs associated with the restructuring. In the coming weeks,
the Company expects to complete a detailed review of approximately $150
million in intangible assets, including goodwill, for certain of
Aegion’s energy-related businesses impacted by the adverse change in
market conditions, a portion of which could be impaired.
Aegion’s 2016 outlook
“As we look to 2016, Infrastructure Solutions remains focused on
maintaining its leadership position by taking advantage of continuing
favorable market conditions in North America,” stated Mr. Gordon. “In
addition, the acquisition of Underground Solutions is an important step
to advance our stated strategic objective to expand our presence in the
growing pressure pipe rehabilitation market in North America.
“In contrast, we expect 2016 will be a more difficult year for the North
American energy markets, particularly related to upstream capital
spending as customers continue to decrease investments in response to
persistent low oil prices. Based on the decision to reduce our exposure
in the upstream markets, we expect Energy Services’ revenues to decline
by approximately $70 million from 2015 with no adverse impact to its
operating margins percentage as a result of the restructuring. Our
Corrosion Protection platform is likely to experience reduced upstream
market activity that will negatively impact profitability, especially
for the Bayou Louisiana coating facility during the first half of 2016.
The planned cost savings from the announced restructuring initiatives
and favorable North American midstream and downstream markets are
expected to offset the market challenges affecting Energy Services and
Corrosion Protection.
“The favorable market conditions for the majority of Aegion’s business
and the strategic actions outlined today give us the opportunity for
2016 non-GAAP earnings per share to be in line with what we expect to
achieve in 2015. This outlook excludes a significant contribution from
the Shell Appomattox contract we believe is likely in the fourth quarter
of 2016. However, the exact schedule for the start of pipe coating
activities has yet to be set. Longer-term, we believe our diversified
portfolio of technologies and services will deliver sustainable growth
as we have repositioned our upstream oil exposure to reflect current
market realities. The broader strategic initiatives we previously
outlined should enhance growth by accessing new markets to rehabilitate
water pressure pipelines, enable more effective pipeline asset integrity
management in the growing midstream market and offer higher-margin
services through strong customer relationships in the West Coast
downstream refining market.”
Conference Call
Aegion’s management will host a conference call on January 5, 2016
beginning at 10:30 A.M. eastern standard time.
Listen-only, Toll free: 877-312-8824
Listen-only, Toll: 408-940-3830
Confirmation
Code: 17958085
About Aegion
Aegion Corporation is a global leader in infrastructure protection and
maintenance, providing proprietary technologies and services: (i) to
protect against the corrosion of industrial pipelines; (ii) to
rehabilitate and strengthen water, wastewater, energy and mining piping
systems and buildings, bridges, tunnels and waterfront structures; and
(iii) to utilize integrated professional services in engineering,
procurement, construction, maintenance and turnaround services for a
broad range of energy related industries. Aegion’s business activities
include manufacturing, distribution, maintenance, construction,
installation, coating and insulation, cathodic protection, research and
development and licensing. More information about Aegion can be found on
our internet site at www.aegion.com.
About Underground Solutions, Inc.
Underground Solutions, Inc. is a leader in water and wastewater
infrastructure and process technologies by providing infrastructure
technologies for water, sewer and conduit applications. Underground
Solutions, Inc. Fusible PVC® products include, Fusible C-900®,
Fusible C-905® and FPVC®, which contain a
proprietary PVC formulation that, when combined with its patented fusion
process, results in a monolithic, fully-restrained, gasket-free,
leak-free piping system. Fusible C-900® and Fusible C-905®
both comply with the AWWA standards AWWA C900 and C905, respectively and
are certified to NSF 61. More information about Underground Solutions,
Inc. can be found at www.undergroundsolutions.com.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a “safe
harbor” for forward-looking statements. Aegion’s forward-looking
statements in this news release represent its beliefs or expectations
about future events or financial performance. These forward-looking
statements are based on information currently available to Aegion and on
management’s beliefs, assumptions, estimates or projections and are not
guarantees of future events or results. When used in this document, the
words “anticipate,” “estimate,” “believe,” “plan,” “intend, “may,”
“will” and similar expressions are intended to identify forward-looking
statements, but are not the exclusive means of identifying such
statements. Such statements are subject to known and unknown risks,
uncertainties and assumptions, including those referred to in the “Risk
Factors” section of Aegion’s Annual Report on Form 10-K for the year
ended December 31, 2014, as filed with the Securities and Exchange
Commission on March 2, 2015, and in subsequently filed documents. In
light of these risks, uncertainties and assumptions, the forward-looking
events may not occur. In addition, Aegion’s actual results may vary
materially from those anticipated, estimated, suggested or projected.
Except as required by law, Aegion does not assume a duty to update
forward-looking statements, whether as a result of new information,
future events or otherwise. Investors should, however, review additional
disclosures made by Aegion from time to time in Aegion’s filings with
the Securities and Exchange Commission. Please use caution and do not
place reliance on forward-looking statements. All forward-looking
statements made by Aegion in this news release are qualified by these
cautionary statements.
Aegion®, the Aegion® logo, Insituform®,
InsituGuard®, InsituMain®, Fyfe®,
Fibrwrap®, Tyfo® and Bayou® are
registered trademarks of Aegion Corporation and its affiliates.
Underground Solutions®, Fusible PVC®, Fusible C-900®,
Fusible C-905® and FPVC® are the registered
trademarks of Underground Solutions, Inc.
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