Aegion Corporation
Q1 2015 Earnings Call Transcript

Published: 29 Apr 2015

[Operator:]

Good morning, and welcome to Aegion Corporation's First Quarter 2015 Earnings Call. At this time all participants are in a listen-only mode. Later there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, this event is being recorded. It is my pleasure to turn the call over to your host, Ruben Mella, Vice President of Investor Relations. Ruben, you may begin.

[Ruben Mella:]

Good morning and thank you for joining us to review Aegion's first quarter results. On the line with me today are Chuck Gordon, President and Chief Executive Officer; David Martin, Executive Vice President and Chief Financial Officer; and David Morris, Executive Vice President and General Counsel. We have posted a presentation that will be used as a reference during the prepared remarks on our website at aegion.com/investors. You'll find our Safe Harbor statement in the presentation and earnings press release, including any non-GAAP information to the most directly comparable GAAP measures and reconciliation to GAAP results. During this conference call, and in the presentation materials, the company will make forward-looking statements, which are inherently subject to risk and uncertainties. The company does not assume the duty to update forward-looking statements. If you turn to slide 2, Aegion delivered solid results in the first quarter, a strong demand in a number of markets offset the expected contraction in the North America upstream oil market, and a negative impact on the strengthening of the U.S. dollar. Non-GAAP earnings per share were $0.13, the same as the result in the first quarter of 2014. The first quarter is traditionally a seasonally low quarter given the impact of winter weather in the Northern Hemisphere. As we enter the important construction season in North America, starting in the second quarter we anticipate favorable market conditions across over 80% of our businesses will help to largely offset the continued challenges in the upstream energy markets and translate the results from our international businesses relating to the stronger dollar. With that brief overview, I will turn the call over to Chuck Gordon. Chuck.

[Charles R. Gordon:]

Thank you Ruben and good morning everyone. Thank you for joining us. The diversification of our portfolio provides an overall balance to our results in Q1 as Infrastructure Solutions, the midstream pipeline market in Corrosion Protection, and the downstream segment for Energy Services helped offset the challenge we experienced in the upstream market. To put this into perspective, the contraction of the upstream market specifically impacts United Pipeline Systems to Energy Services businesses in Central California and the Permian Basin and the Bayou operations in Canada. The impact in the first quarter decreased our earnings per share by about $0.04 compared to 2014 which includes the negative impact the strong U.S. dollar had on these earnings. Looking to the balance of 2015, we expect our areas of strength will continue to largely offset what we anticipate will be weak demand for our products and services in the upstream market. Turning to slide 3, Infrastructure Solutions had a solid first quarter despite late winter weather across most of the U.S. which pushed scheduled work into the remainder of the year. Our focus on operational excellence along with securing new projects generated good results in Q1. Backlog entering the second quarter was 354 million, a 7% increase over the first quarter of 2014. If you exclude the backlog from the restructured international markets, Infrastructure Solutions increased backlog by over 10% year-over-year. Insituform North America ended the first quarter with a backlog of $268 million, a very strong result coming out of the North America winter season. New orders increased almost 26% versus 2014 in the first quarter. The quality of the backlog remains high as bid margins were within our target and the win rate is ahead of our typical winning percentage. The good news is the market expansion is broad based across major regions of the U.S. and select areas in Canada and is driven both by municipalities increasing their investments in infrastructure development as well as by large consent decree mandates. A good start in the first quarter gives us confidence that North America CIPP market will grow mid single-digits in 2015, as we expected going into the year. Fyfe/Fibrwrap had another strong quarter generating gross margins enter the target of 35% to 40% compared to 34% margin in the first quarter of 2014. Backlog as of March 31st, was up 26% to $58 million led by a large industrial pipeline project in the U.S. that is scheduled to start in the second quarter. The integration with Insituform is proceeding well especially in North America where we are taking advantage during Insituform's back office services and other capabilities to leverage best practices and cost to estimating and project management. The combination of Insituform and Fyfe/Fibrwrap sales organization in the pressure pipe market is proceeding well, and the investments we made to build out the sales organization in the commercial structure and transportation end markets are increasing market visibility. In Asia Fyfe local management team is successfully integrating Insituform and Fyfe/Fibrwrap where we expect opportunities for growth from both market leading technologies. Customers continue to migrate Fibrwrap, recognizing the inherent advantage of this disrupted technology for rehabilitating and strengthening pipelines and structures. That was evidenced in the first quarter as backlog remained in the range of $30 million. The benefit from the restructuring and the expected growth outlook in the region positions the Asian and European businesses to significantly increase profits in 2015. Overall infrastructure solution is positioned well for the rest of 2015 based on the level and expected profitability of the backlog we have in hand today. Turning to Corrosion Protection, first quarter results for Corrosion Protection came in largely as expected given the current market challenges. Backlog as of March 31, 2015 was a $159 million just 1% below the prior year period as you can see on slide 4. Corrpro's backlog was down 6% at the end of March compared to 2014. However, Corrpro has a strong sales going into the second quarter that combined with measures taken in the first quarter to improve margins, results in our expectations for the business to do well during the rest of 2015. Pipeline capital maintenance spend is down significantly in the North America upstream segment resulting in lower revenues for United Pipeline Systems. Backlog as of March 31st, for United was down 25% year-over-year. While United works with their North American customers to weather the reduced upstream investments, they have successfully secured several international projects and they are pursuing other bids that can help to partially offset the decline in revenues and profits we expect in 2015. The first quarter results in Canada include record performances for Bayou and Corrpro. Corrpro is the number one player in cathodic protection in the United States and Canada and we are leveraging our scale not only in oil and gas pipelines but in another areas that require corrosion prevention systems, inspection service, and corrosion analysis and remediation. Corrpro is building their Canadian backlog in these alternative markets which supports our optimism for their performance over the rest of the year. The current pipeline construction season is effectively over in Canada. United and Bayou typically experienced lower volumes in the second quarter as customers are not yet placing orders for the new construction season which normally begins in the third quarter. We are in discussions with our Canadian customers and expect to know more this summer about the outlook for that market. The Middle East platform has timing issues to work through with the existing backlog in the current bid table, as we peruse new projects. However our business in this region is performing as expected. Finally CRTS is working with United to execute a large pipe welding and coating project in Chile and Bayou, Louisiana has a good line of sight to be profitable this year. With the exception of United and the Bayou business in Canada, we are optimistic about the outlook for the Corrosion Protection platform over the remainder of the year. Energy Services also felt the impact from depressed oil prices during the first quarter in the upstream market. Our upstream customers are reducing their investments significantly in response to low oil prices. That means stretching time lines for maintenance activities, to reduce overtime, delaying small capital construction projects, and reducing the scope of engineering work. We provide all of these services to help our customers run their assets at peak efficiencies. To-date, we’ve maintained our existing contract revenues based on our track record of performance and safety and by increasing our share of work with several key customers. The challenge we face is margin contraction as a result of the cost containing efforts -- containment efforts of our customers. Backlog entering the second quarter was down 6% to $139 million, but we recently received the renewal for multi-year contract valued at $50 million per year which was not included in our reported backlog. A second contract was an earning value of nearly $50 million, is up for renewal in December. That contract will reduce reported backlog until decision is made on the renewal. We have a long-term relationship with this upstream customer and we are very focused on continuing to deliver the high quality and safe performance we’ve achieved in the past. Lastly, we continue to view the Permian Basin as a long-term opportunity which justifies the investments we are making to build our presence in this upstream market. The downstream segment continues to be a source of strength for Energy Services. We increased billable hours significantly in the first quarter. Overall turnaround activity has increased compared to 2014, although we finally stopped these earlier this year and two of our key customers have delayed plant turnarounds originally scheduled for the second quarter to later into this year. Several non-recurring events impacted Energy Service margins in Q1. We expect Energy Services gross and operating margins to gradually increase during the rest of the year to 2014 levels. Let me give you an update on our restructuring activities. I am pleased with the progress we continue to make with our restructuring efforts that you can see on slide 6. We are on track for the restructuring cash costs to be in the range of $11 million to $14 million which is lower than our original expectation of $15 million to $18 million. We have $4 million to $6 million left to record based on winding down contract activities in Hong Kong, Malaysia and Singapore which are expected to conclude by the third quarter. Completing the remaining backlog in India, may shift activities into the first quarter of 2016. We are confident as you can see on slide 7, of achieving the high-end of the $8 million to $11 million range in annual savings which represents up to $0.20 per diluted share. We realized restructuring savings of 5% per share in the first quarter, $0.04 for Infrastructure Solutions, and the remaining penny was for lower depreciation to Bayou, Louisiana facility. In February we sold the contract and operations in France which fall the sale of our Swiss operation in December. We were able to secure long-term secured in place pipe product contracts in both markets positioning us for more consistent and profitable performance on a go forward basis. Since the fourth quarter of last year, we delivered savings at $0.12 per diluted share from the restructuring efforts. I believe the pieces are in place for a solid second quarter where areas of strength can help largely offset the challenges we face in the upstream oil market. As you can see on slide 8 and 9, our seasonality positions us in the second half driven company. The current uncertain demand for coatings and liners in the upstream Canadian market limits our visibility into the second half of the year for Corrosion Protection. We continue to work closely with our customers there and in U.S. upstream segments to effectively manage balance of the year. On the positive side, Infrastructure Solutions is well positioned for growth in 2015 with a good line of sight through the end of the year for Insituform North America. Fyfe/Fibrwrap also has a backlog in hand to anchor what we project will be a good year for revenue and operating income growth. Energy Services had a leadership position in the West Coast downstream market and they remained focused on high quality service, unmatched safety performance, and up selling their other services to help their customers. The midstream market for Corrosion Protection looks to be in line with what we expect going into 2015. These areas of strength can largely offset what may happen in the second half of the year in the upstream market, that’s the benefit of our diversification strategy. The bottom-line is we remain focused on operational excellence to preserve markets in this market environment. We control how are crews, engineers, skilled labor, and manufacturing personnel performed regardless of market conditions. Although we did a reasonable job in the first quarter we can certainly improve which gives me confidence as we continue to drive the execution during the remainder of 2015. If you turn to slide 10, we continue to believe that the end markets we serve across the company are well positioned over the long-term. There is no doubt there is a growing need for infrastructure rehabilitation, strengthening, protection, and maintenance. We have the right technologies and services and key segments of the global infrastructure market for water and waste water pipelines, to oil, gas, and mining pipelines, to commercial and transportation structures, to helping our customers run their facilities in an efficient and safe manner. In conclusion, we feel good about our overall performance in Q1 and believe the resilience for our portfolio will continue to provide solid results during the rest of 2015. Now let me turn the call over to David for a little bit deeper perspective on the first quarter results. David?

[David A. Martin:]

Thank you Chuck and good morning. We overcame market challenges outlined in Chuck’s remarks to deliver a good result in the first quarter. If you turn to slide 11 we’ve highlighted the moving parts in the quarter so you have a better understanding of how to compare core earnings between the two periods. The strengthening of the U.S. dollar had a negative translation impact on consolidated revenues, operating income, and diluted earnings per share of 10.4 million, 1.8 million, and $0.03 per diluted share respectively. We sold our operation in Bayou Coatings in the first quarter of 2014 and no longer have the benefit of equity earnings in our financial results. The net effect of the first quarter 2014 in terms of the loss on the sale of that joint venture and the reported equity earnings was $0.01. If you normalize these factors, core earnings in the first quarter of 2014 were $0.08 compared to the $0.13 core earnings we reported yesterday for the first quarter of 2015. From this perspective consolidated revenues grew 4.5%, operating income grew 39%, and diluted earnings per share grew over 62%. Now let me add some color on the gross margin performance that is summarized on slide 12. Infrastructure Solutions expanded gross margins by 249 basis points to 23.4% led by a Fyfe/Fibrwrap which delivered gross margins in excess of 40%. Insituform also expanded gross margins a 190 basis points to over 20% as the international CIPP business turned a profit and the Insituform North America business generated gross margins greater than 20% consistent with what we achieved last year in the first quarter. Infrastructure Solutions experienced a 3.4% reduction in revenues from the currency translation impacts which also impacted gross and operating margins by 90 and 53 basis points respectively. The margin compression in Corrosion Protection was the result of four primary factors. First, margins for CRTS, our robotic coating services business were down significantly as we ramped up efforts to execute a large onshore project in Chile which carries lower margins. And we no longer have the high margins from the Wasit project in Saudi Arabia as we completed the project in the fourth quarter of last year. The successful completion of the Wasit project is opening new opportunities for CRTS that they are currently pursuing though it always takes time to replace large projects like that one. Second, the first quarter is traditionally the lowest point of the year for Corrpro's U.S. business which creates margin volatility with its fixed cost position in labor and equipment. That will correct itself over the course of this year quarters ahead as project volume increases for the primary construction and inspection season ahead. Third, the upstream challenges at United Pipeline resulted in a significant margin decline for our traditionally highest gross margin business within Corrosion Protection. Finally Corrosion Protection took the brunt of the currency hits, nearly all in Canada with a 6% negative impact to revenues, a 149 basis point impact to gross margins and a 104 basis point impact to operating margin. Gross margin compression for the upstream portion of Energy Services was approximately 500 basis points, driven primarily by the current dynamics in Central California. In the Permian, we continue to make the investments to increase our presence there, while pursuing new opportunities in the region. Right now our operations in the Permian are a drag on margins and profitability as we grow the business. Based on the bid table we have today though, we expect the operations in the Permian to breakeven during 2015. Now let’s turn to our cash performance as shown on Slide 13. Our cash balance at the end of the quarter was down $39 million to $136 million from the record $175 at the end of last year. The first quarter as a use of cash reflecting the seasonal low period for the company, it also includes a $6.4 million acquisition, net of cash required of Schultz Mechanical Contractors, a West Coast base contractor for Energy Services that enables them to take advantage of market opportunities there. Cash flow from operations in the first quarter used $12.2 million of cash compared to $8.9 million used in the first quarter of 2014. This net change in working capital was also in-line with the prior year period. DSOs declined by six days to 91.5 days from the first quarter of 2014 as shown in slide 14. We are focused on optimizing our working capital needs through a reduction in DSOs. As I stated on the fourth quarter call, we have an objective to reduce DSOs on a sustainable basis to 75 days or less over the next several years, which will not only help us lower invested to capital to benefit ROIC but will conservatively generate an additional $28 million annually in addition to operating cash flow. I expect us to make nice improvements over the course of 2015 as the specific focus actions in each segment take hold. Our uses of cash in the first quarter includes $7.6 million for the repurchase of our 320,000 shares, as part of our $20 million program authorized by the Board in the first quarter. Capital expenditures were $4.2 million in the quarter, less than the $5.6 million spent last year. And then we had a total of $7 million in debt repayments during the first quarter of 2015 and we expect the remainder of the year to be about $26 million in total debt repayments. Turning to slide 15, Chuck stated earlier, we are pleased with the results of the first quarter and the start of our year. We continue to have solid backlog position and we have a clear focus on execution that will position us to drive good results going forward. Overall our balance sheet remains strong to support our working capital needs and return cash to stockholders through our kind of stock buyback program. Whatever the second half outlook turns out to be, I believe we can continue to improve the financial health of the business during 2015 and beyond. So that concludes our prepared remarks. I’ll turn over the call to the operator to begin the Q&A session.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Craig Bibb of CJS Securities, your line is now open.

[Craig Martin Bibb:]

Hi guys, great quarter. You were talking about Energy Services margins was not the representative of what you expect for the rest of the year, and maybe you could kind of clarify that a little bit and talk about what at least in broad strokes what you are looking for gross margin and how that will change in the second half?

[Charles R. Gordon:]

Sure. There is a couple of things that impacted margins in Q1. Certainly the upstream market conditions were part of that, but we also have Q1 hit because of payroll taxes that doesn’t continue through the rest of year. We also had some one-time events in Q1 that won’t reoccur. So what we expect to happen through the rest of the year is that our margins will begin to approach what we saw last year on as an average.

[Craig Martin Bibb:]

So even with the mix shift away from upstream, you would have flattish GP?

[Charles R. Gordon:]

That’s what we expect and part of the reason is the -– we’ll expect those to increase through the course of the year but part of the upside is that the upstream market is going to have to a better turnaround season to the rest of the year than they had last year. We won’t see it in Q2, we had a couple turnarounds that were scheduled in Q2 because of the USW strike those got pushed back into what we expect now to be Q3. But those certainly provide nice upside from revenue and margin perspective, revenue and margin dollar perspective for us.

[Craig Martin Bibb:]

Okay, great. The project in Chile that is, it sounds like that’s lower margin than the -– project last year, is it about the same size and is there going to be any new ones as they might relate to each other quarter over quarter that’s going to cause blips?

[Charles R. Gordon:]

The project is lower margin and that’s typical for our onshore projects. Because of the market dynamics we see lower margins onshore with the robots and we do offshore and this is obviously an onshore project. The projects are -- the project in Chile is a bit smaller than the Wasit project was. Right now we are early into the project and really in the start up phase and we expect the project to go as we got it scheduled and planned but we are early into the project.

[Craig Martin Bibb:]

Okay and then you said you are making progress following up on the list on the prior project, is there a likelihood that you are going to pick up another large project before the end of the year or is that for next year.

[David A. Martin:]

It’s a challenge. We do have a sales funnel in the Middle East for that business, their onshore projects. What right now what we are trying to sort through is exactly what we think the timing of the projects would be.

[Craig Martin Bibb:]

Alright, thanks a lot.

[David A. Martin:]

You are welcome.

[Charles R. Gordon:]

Thank you.

[Operator:]

Thank you and our next question comes from Glenn Wortman of Sidoti & Company. Your line is now open.

[Glenn Wortman:]

Yeah, good morning everyone.

[Charles R. Gordon:]

Good morning.

[Glenn Wortman:]

The margin in Infrastructure Solutions was much greater than these dollars looking for, can you just help us fully understand the sequential $4 million decrease from the fourth quarter and the OPEX for that business and is this a good run rate to use going forward?

[Charles R. Gordon:]

Certainly we had operations that we have been winding down in the international components of the business. Certainly translation impacts during the first quarter are bringing the OPEX down as well and we talked about that in the remarks. But we have been controlling the expenses throughout the Infrastructure Solutions business as well. So as far as the run rate goes you can probably model out that, maybe some sequential increases related to normal things that happened during the year in terms of incentive and all that kind of things.

[Glenn Wortman:]

Okay and then on the gross margin, some nice improvement there. Looking back to 4Q and what was a seasonally stronger quarter you put up a 28% gross margin for infrastructure solutions, do you think you can get back to as we progress throughout the year into this seasonally stronger quarters?

[Charles R. Gordon:]

That was obviously a very, very strong quarter, lot of confluences of good things as the weather was great for us during the fourth quarter and we ran down some -- a lot of activity. But I would expect obviously sequential improvement in the margins as we go through the year, as we hit the more busier quarters for Insituform as well as Fyfe business. But seeing 28% is almost as good as it gets right now so.

[Glenn Wortman:]

Okay, fair enough and then finally nice background growth for Infrastructure Solutions and what are the exit operations within that segment would you still expect revenue to increase this year?

[David A. Martin:]

Yes, we would expect revenue sort of across that segment probably to increase in the mid-to-high single-digits.

[Glenn Wortman:]

Okay, thanks a lot for taking my questions.

[David A. Martin:]

You are welcome, thank you.

[Operator:]

Thank you and our next question comes from Eric Stine of Craig-Hallum. Your line is now open.

[Eric Stine:]

Good morning guys.

[Charles R. Gordon:]

Good morning.

[Eric Stine:]

So in your commentary you talked about solid performance expected in Q2 and just wondering, I mean can you given where your backlog is any clarity or direction versus last year’s Q2, is it fair to say that you are thinking it’s a similar type of step-up quarter-over-quarter?

[Charles R. Gordon:]

I think we should expect that we are certainly going to have a stronger Q2 than we had in Q1. And as we mentioned over the course of the year, we continue to expect that our areas of strength will largely offset the upstream challenges that we have. And I think that, that's what I would expect as we get into the rest of the year.

[Eric Stine:]

Okay, and then maybe and I know it is -- this is a difficult question but I will give it a shot, you talked about -- I mean, the second half is very dependent on the order book and I know you are not going to know that for a couple of months, but any details on the conversations you are having with the customers, do these feel better about where you stand now than maybe you did a couple of months ago or how should we think about that?

[Charles R. Gordon:]

I think we were pretty conservative a couple of months ago and I think we feel -- we still feel very conservative in the assumptions that we are putting into what we think might happen. But to be honest, it is still very unknown to us and we have been talking to customers and we just don’t have a good -- we just don’t have a good feel for it yet.

[Eric Stine:]

Okay, fair enough. Then lastly, just maybe Fyfe, just curious how the opportunities come in together in Japan. I mean you got certification there, just how should we think about that going forward? Thank you.

[Charles R. Gordon:]

We feel really good, I am going to break it into two pieces to answer that question. We have a very strong team in Asia. We expect probably high single-digit to low double-digit growth in Asia in the Fyfe business. In North America, we had a solid new orders, I am going to say through April because April numbers are in obviously. But we have had solid new orders for the year, so we feel optimistic. What we have been saying is that we can increase the revenue and operating profile of that margin by -- in that 15% plus range and we still feel good about that over the rest of the year. Our challenge in Japan continues to be market access. We have got a great product there. We have got all the right registrations but we have had challenge accessing that market and that continues to be a challenge for us.

[Eric Stine:]

Your I mean, minimal expectations in your outlook for Japan, I mean Japan would be upside to that outlook?

[Charles R. Gordon:]

Yes, Japan would be an upside to that outlook. We haven’t factored a lot of -- we haven’t figured a lot of upside for Japan into the outlook.

[Eric Stine:]

Okay, thanks a lot.

[Operator:]

Thank you and our next question comes from Noelle Dilts of Stifel. Your line is now open.

[Charles R. Gordon:]

Good morning Noelle.

[Noelle Dilts:]

Good morning. How are you?

[Charles R. Gordon:]

Good.

[Noelle Dilts:]

My first question, you obviously had a lot of success so far with your restructuring effort. If you do in fact see a significant deterioration in the -- what say Fyfe Canada and some of the upstream related businesses in the back half of the year, how are you thinking about taking additional actions and your just thoughts on additional restructuring actions at this point?

[Charles R. Gordon:]

We always look at our business on an ongoing basis. As an example in Q1 we had to make some adjustments to the Corrpro business. And we just do that, we look at that as just a matter of routine business and by the way the adjustments in Corrpro in the U.S. that's just routine for us. I don’t anticipate any big restructuring actions or anything like we announced in October of last year, but on an ongoing basis we are constantly adjusting these businesses to match what we think the current outlook is for the market.

[Noelle Dilts:]

Okay, that's helpful. And then just going back to Fyfe, again some nice improvements there in the quarter, do you think that largely is reflective of the improvements that you have made to rehabilitate your sales force or do you think you are starting to see kind of a turn in the market willingness to adopt this product?

[Charles R. Gordon:]

That's a great question. It is hard to separate those two things. I will be honest with you, we certainly are seeing a wider acceptance of the technology in the marketplace but it is very difficult to say if that is because we have better sales coverage or because why the engineering companies are becoming more aware and comfortable with the technology. That's a hard one for me to assess. But we certainly are seeing wider acceptance.

[Noelle Dilts:]

Great. Thanks appreciate it.

[Operator:]

Thank you and our next question comes from Spencer Joyce or Hilliard Lyons. Your line is now open.

[Spencer Joyce:]

Hey guys, thanks for taking my questions.

[Charles R. Gordon:]

Good morning.

[Spencer Joyce:]

First thing I want to ask about, can you just real briefly touch on the Schultz Mechanical Contractors acquisition, I may have missed a press release on the road or something. Where is that tucked in and what kind do they bring to the table?

[Charles R. Gordon:]

Sure, so Schultz, we acquired Schultz at the end of February. It’s a very small mechanical contractor that tucks into Energy Services and what that brings us is it provides us access to unionized work to trade union work in California, through Energy Services.

[Spencer Joyce:]

Okay fantastic. Also kind of granular here but I believe you mentioned specifically a $50 million contract at Brinderson that expires in December and that will be a headwind to backlog over the next quarter or two or however long before that’s renewed. My question specifically is what’s the timetable for renegotiation or an extension there and is it possible we may see a press release on that kind of as the events unfold?

[Charles R. Gordon:]

We would expect to renew that contract in Q4, maybe late Q3 or Q4. It is a renewal and it would be a renewal assuming it goes through. It doesn’t, it’s a customer we’ve had for a significant period of time up there. We certainly are making every effort to renew that contract. We typically haven’t done press releases for those kind of renewals but we will certainly be able to report on it as soon as that renewal happens. As I also mentioned we had a renewal that just occurred in April. We didn’t do a press release on that and what we’ve been doing was trying to be more public with additions to the business as opposed to the management of the reoccurring portion of the business.

[Spencer Joyce:]

Absolutely and that’s a fair distinction there. One final one from me, can you give us a little more color on the integration or the emerging of Fyfe and Insituform, maybe specifically some integrated sales strategies that maybe working or maybe just where we stand in relation to merging the sales and marketing efforts versus perhaps the back office and engineering functions?

[David A. Martin:]

I mean to just comment quickly on the back office, engineering, and operations management as you expect out of the more mature business, Insituform has a very well developed back office process and I would include engineering, operations management, accounting, the whole package. And the integration has went extremely well from my perspective. I think our ability to manage and control the margins in that business is significantly better than it was a year ago. The second thing I would say, and now moving on to the sale side I think if you remember what we talked about, we believe that the Insituform sales force with their municipal relationships are positioned to sell pressure pipe opportunities in the municipal market for Fyfe. And we saw some of that in the first quarter already and typically when there is a pressured pipe problem, its sort of an emergency. They have to fix it right away unlike a sewer that has a leak which may go unrepaired for a while. When a pressure pipe, when a water pipe has a leak its typically an emergency situation. And we had several examples in the first quarter where we were able to respond very quickly to what the municipality considered emergency situation. We got to work, we got a nice margin, it was absolutely because we had that low Insituform relationship that we can leverage off of. And we continue, where we expect to continue to see those kinds of opportunities as we go forward. On the industrial side what we’ve done is build out the Fyfe sales force and we continue to invest in that group and they are really looking at the rest of the market for Fyfe. And I think that what we have accomplished with the integration is from a sales process standpoint they are leveraging off a lot of the CRM tools and other things that we’ve used for years in Insituform and it’s really helped us gain visibility to the sales process at Fyfe. But that sales organization is focused on Fyfe in the industrial and commercial markets. And so we are excited about the overall integration. I think it’s just absolutely when it’s planned, we’d always like to see more on the sales side but I think we are in great shape.

[Spencer Joyce:]

Fantastic color there and really encouraging to hear there were some specific examples of the Fyfe, folks being able to leverage some Insituform contacts and relationships. I mean already in Q1, but nice quarter guys, that’s all I had.

[Charles R. Gordon:]

Thank you.

[David A. Martin:]

Thank you.

[Operator:]

[Operator Instructions]. Our next question comes from the line of John Rogers of D.A. Davidson. Your line is now open.

[John B. Rogers:]

Hi, good morning. Chuck I just wanted to follow up real quick on the comments about the renewals both in April and then potentially at year-end, any significant change in pricing there in the current environment?

[Charles R. Gordon:]

The actual rates in the contracts are consistent. The challenge that we have in the upstream market is that the level of overtime that we are allowed to work and some of the recoverable cost that we amortize over hours has probably less recovery when we work straight time, than it did when we were working lot overtime. But the actual rates in the contract are consistent that the challenge is obviously customers don’t want us working overtime. They would rather stretch out the schedule for the projects. There is not nearly as much, I guess incentives to finish projects early and those kinds of things. So in terms of the actual rates in the contract, those are -- have been pretty stable. But the amount of work that we are able to perform under the contracts has been reduced in the upstream because of the oil prices.

[John B. Rogers:]

Right, thank you. And in terms of turnaround activity, I mean more on the downstream side of it, should we see a much stronger season end of the third, beginning of the fourth quarter this year because of the deferrals?

[Charles R. Gordon:]

Because of what, I am sorry.

[John B. Rogers:]

Because of some of the work that was deferred?

[Charles R. Gordon:]

I think so, we expect to have a better second half than we originally thought. We thought that there was going to be a couple of turnarounds in Q2 that have been pushed back and because of that we expect a very solid second half in the downstream market. And we have done several small turnarounds typically in gas plants in the upstream market and we think there might be some more opportunity for some of that, but yes, we do expect a stronger second half in terms of turnarounds.

[John B. Rogers:]

Okay and that’s typically third, fourth quarter for you though right, end of the third?

[Charles R. Gordon:]

Yeah exactly and I don’t think we have a real good handle yet on exactly when those are going to start, whether those will be a third quarter event or partial third quarter going into the fourth quarter or fourth quarter. But we expect it to occur during the second half.

[John B. Rogers:]

Okay, great. Thank you.

[Charles R. Gordon:]

You are welcome.

[Operator:]

Thank you. And at this time, I’m showing there are no further participants in the queue. I would like to turn the call back to management for any closing remarks.

[Charles R. Gordon:]

Thank you. Thanks for joining us today. We appreciate your participation. We are pleased with the way Q1 came in. Obviously there are opportunities for improvement. We are certainly pursuing every one of those as we get into Q2. We remain optimistic that our areas of strength can marginally offset what we see as the challenges in the upstream market and that’s really the value of the Aegion diversification strategy and portfolio. And we look forward to the results over the rest of the year and remain confident. So thanks for your participation in the call and please call us if you have any more questions that you want to take off line. Thank you.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This concludes the program. You may now disconnect. Everyone have a great day.