Aegion Corp (AEGN)

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Aegion (AEGN)

Q2 2013 Earnings Call

July 31, 2013 9:30 am ET

Executives

J. Joseph Burgess - Chief Executive Officer, President, Executive Director and Member of Strategic Planning & Finance Committee

David A. Martin - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Analysts

Eric Stine - Craig-Hallum Capital Group LLC, Research Division

Colin W. Rusch - Northland Capital Markets, Research Division

Arnold Ursaner - CJS Securities, Inc.

Noelle C. Dilts - Stifel, Nicolaus & Co., Inc., Research Division

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Presentation

Operator

Good morning, and welcome to Aegion Corporation Second Quarter 2013 Earnings Call. [Operator Instructions] As a reminder, this event is being recorded.

Management has provided a presentation to summarize the financial results and outlook. The presentation can be found on Aegion's website at www.aegion.com. Any financial or statistical information presented during this call, including any non-GAAP information, the most directly comparable GAAP measures and reconciliation to GAAP results will be available on Aegion's website at www.aegion.com.

During this conference call, the company will make forward-looking statements, which are inherently subject to risks and uncertainties. Results could differ materially from those currently anticipated due to a number of factors described in their SEC filings and throughout this conference call. The company does not assume the duty to update forward-looking statements. Please use caution and do not rely on such statements.

I would now like to turn the conference over to Joe Burgess, President and CEO of Aegion. Sir, you may begin.

J. Joseph Burgess

Thank you, and welcome to our quarterly earnings call today. With me are David Martin, Senior Vice President and Chief Financial Officer; and Ruben Mella, Vice President of Investor Relations and Corporate Communications. There's a lot of noise in the quarterly results, so both David and I, mostly David, will spend time parsing the numbers to get to the comparative operating results, which are essentially flat with the last year.

This result does not reflect the strength and momentum the company enjoys in its key markets. We have been frustrated in the first half by factors largely out of our control, weather and customer-driven project delays. Under normal conditions, we had and have the backlog to produce a record quarter. Our challenge now is to do our best to get through this work to produce the results we all expect for the second half. I believe we will get this done and will focus my remarks later on our second half execution plans.

But before I hand it over to David to review the financials, let me return to the noise. You may recall that last year at year end, I said that we would be focusing on some of our smaller, less strategic businesses in our portfolio. We would not continue under operating scenarios whereby our core businesses, NAR, Corrpro, UPS, Fibrwrap, are delivering and yet our results are dampened by performance in business units that mean little to our future.

We have taken 2 steps during the first half to clean up our business. First, we sold our interest in IRT, our German joint venture in wastewater. This business was a 50-50 venture with Per Aarsleff, a company that was originally one of our licensees. We have seen results decline in this business for several years and decided to monetize our position. Importantly though, we have preserved our ability to sell felt and glass product into the German market. The products side, frankly, is where the money is in Germany.

Second, we have discontinued our welding business that was acquired with the Bayou acquisition. We have looked at several options over the years to reshape these businesses into something that could produce sustainable profits with appropriate risks without success. The only welding service we see as critical to our customers is double jointing, and we will retain that capability.

While one of these decisions produced a gain, the other, a loss, they are part of the same decision-making process that we discussed last year, specifically, produce returns supportive of our corporate goals at reasonable risk postures or quit doing it. Our businesses is healthier for these 2 decisions.

For now, I'll turn it over to David for a detailed discussion of the results. David?

David A. Martin

Thank you, Joe, and good morning. With our results detailed in the press release and the earnings slides, I'll focus my attention this morning on providing some insight into our results as it compares to our expectations for the quarter. The one-time and unusual impacts are delineated in the release, but these items created noise, as Joe described, in the overall performance. But we have tried to provide as much clarity as possible with the release.

It should be noted that we made some important strides with a number of our key businesses in terms of performance in the second quarter. Not only did North American Water and Wastewater turn in its best performance in several years, it is poised for even better performance going forward with record backlog. And Joe will describe that further later. The performance in the second quarter for Corrpro was also notable, particularly in the United States. And there were others as well.

If not for persistent project delays and lost production days from severe weather, we would've seen much improved performance year-over-year. I'd like to walk through those impacts now. Our performance was most impacted by customer-directed delays affecting Bayou, the North American segment of Commercial and Structural and United Pipeline Systems to the tune of approximately $5 million in pretax profits. This profit, I must emphasize, is substantially recoverable. Over $2 million of this variance is tied to the coatings business, Bayou's New Iberia, Louisiana coating operation, which as we've discussed previously, has been impacted by a lull in the Gulf of Mexico market. Originally set to begin in the second quarter, their largest remaining project for this year has now been rescheduled by its customer for the second half of the year to accommodate their schedule for the overall pipeline offshore installation.

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