Aegion Corporation
Q3 2015 Earnings Call Transcript

Published: 3 Nov 2015

[Operator:]

Good morning and welcome to the Aegion Corporation third-quarter 2015 earnings call. [Operator Instructions] As a reminder, this event is being recorded. It is my pleasure to turn the call over to Mr. Ruben Mella, Vice President of Investor Relations. Ruben, you may begin.

[Ruben Mella:]

Thank you and good morning, thank you all for joining us to review Aegion's third quarter results and outlook. On the line with me today are Chuck Gordon, President and Chief Executive Officer and David Martin, Executive Vice President and Chief Financial Officer. 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, third quarter non-GAAP earnings per share were $0.44 one penny ahead of our results in the third quarter of 2014. Strong performances by infrastructure solutions the downstream business for energy services and the success of the 2014 restructuring plan offset ongoing volatility in the energy markets. With that brief introduction, I will turn the call over to Chuck Gordon. Chuck?

[Chuck Gordon:]

Thank you Ruben and good morning everyone. Thank you for joining us. As David and I discuss results in the third quarter the outlook for the fourth quarter and our initial thoughts on 2016, there are four points I'd like for you to take away from the call this morning as shown on Slide 3. First there were some key takeaways based on the third quarter results, reviewing our quarterly performance we are successfully executing across the company especially in very difficult energy market environment. I'm also pleased with our efforts to continue to improve our project management capability. Finally, an important factor in the improved execution was restructuring initiative launched to 2014 which has exceeded our expectations. Second, backlog going into the fourth quarter is in a strong position for many of our businesses. We expect to have a solid fourth quarter although the pressures from the U.S. dollar, the decline in backlog in Canada for the linings and coding's business, the timing of project activity and usual seasonal uncertainty of early winter weather will likely result in the earnings performance that’s closer to the second quarter than the third quarter. Third, our corporate strategic review of budget planning process is underway as we assess the outlook for 2016. Our current view as we expect favorable market conditions for infrastructure solutions, Corrpro and the energy services downstream business. It is clear next year we'll once again see lower capital maintenance spending in the upstream energy markets we need to complete the market assessment over the next few months to more fully understand our prospects. We are pleased to be selected by Shell to coat and insulate the pipelines for the Deep-Water Appomattox project. This is a very significant win for us. And we expect the contract to be signed and included in backlog before the end of the year. Finally, the strategic review is not solely focused on 2016, but where we believe our end markets will trend in the coming years, we will make the necessary decisions to invest and modify when needed our portfolio companies technologies and services for future growth. To support our long-term strategy we amended our $650 million bank credit facility to extent current interest rates and enhance our financial capacity and flexibility including share repurchases. David, will shortly give you the main takeaways from the third quarter results. Overall I'm pleased with how we demonstrated the ability to overcome the significant pressure from the upstream market challenges, which clearly puts into perspective the success we've enjoyed this year from infrastructure solutions, energy services downstream business and the benefits of the restructuring initiative. The continued impact from low oil prices resulted in a further decline in revenues for United Pipeline systems, the energy services upstream business and Bayou Canada pipe coatings. The impact was worth approximately $0.11 per diluted share compared to the third quarter 2014. In addition Corrpro had several large customer direct delays which affected their performance in the quarter. As you well know the continued strength in the U.S. dollar created the currency translation headwind over the first nine months of 2015, lowering non-GAAP EPS by over $0.08 per share, adjusting our results for currency is shown on Slide 4, non-GAAP earnings per share grew 16.5% over the first nine months of 2015, compared to the first nine months of 2014. Now, let's get into more detail on how we will conclude 2015. Infrastructure solutions is poised to generate record performance in 2015 through modest revenue growth, margin expansion and strong operating income performance .As you can see on Slide 5, backlog entering the fourth quarter was 346,000 million, a 6% increase over the same period in 2014. This does exclude backlog from the six international markets where we're concluding contracting operations. Backlog for Insituform North America remained at near record levels growing 8% to 180 million. As we've seen all the year, the quality of the backlog remains high as bid margins were within our targets and we maintained a similar win rate percentage. Weather is always a factor at the end of the year and keeping mind that last December we experienced ideal conditions. We never planned that to happen. And as a result we expect revenues for infrastructure solutions to fall off a bit compared to the fourth quarter of 2014. Fyfe/Fibrwrap had another strong quarter generating gross margin above target. We successfully completed the large North American industrial pipeline rehabilitation project in the third quarter. I'm very pleased by how well the Insituform and Fyfe/Fibrwrap integration has gone, which has resulted in improved margin performance for Fyfe/Fibrwrap through strong project execution. Despite the completion of large industrial project, backlog as of September 30th was up 19% to 48 million compared to the same period in 2014, driven by increases in North America and Asia. For the full year we expect Fyfe/Fibrwrap to deliver strong top line and profit growth ahead of our expectations. Turning to Slide 6, the realignment and restructuring initiative we announced in October 2014, significantly improved execution through the realignment of the reporting segments as well as the decision to exit nonperforming international cured in place pipe contracting markets. The restructuring is essentially complete and has delivered 10.8 million in pretax annual savings or $0.20 per diluted share over the last four quarters, which nearly covers the current one-time cash cost of 11.4 million, as shown on Slide 7. Five of the six countries have completed the wind down of contracts and operations and have transitioned to product supply and technical sales support. India is the last contracting market where we have backlog to complete in coming months. We will recognize small additional charges mostly non-cash in the fourth quarter and throughout the first half of 2016, as we finalize the shutdown of operations. Turing to Corrosion Protection on Slide 8, we expected Corrosion Protection to deliver better results in the third quarter, however some of our upstream and midstream customers postpone the start of several large projects. We partially offset this impact to greater production at our Bayou, Louisiana facility and the execution of the large CRTS/United pipeline systems lining project in Chile booked in the third quarter of 2014. Backlog as of September 30th was down approximately 8% to 185 million due in part to execution of these two projects. Another reason is a significant pipeline market contraction in Canada for Bayou Coatings and United Pipeline Systems as a result of current oil market conditions. While United Pipeline System has taken the brunt of the upstream pullback in North America, they recently secured a $20 million mining pipeline project in Chile which carried margins below typical levels because of the high subcontracting content. As a result United’s backlog increased 6% to over 40 million compare to the third quarter of 2014. Customer directed delays also impacted Corrpro performance in the third quarter as strong orders in June, July were not released for work until September including the start of the large AC mitigation project in Canada yielded over 10 million. Corrpro backlog was $80 million at the start of the fourth quarter compared to a record $89 million in the third quarter of 2014 when the Canadian market was at its peak. However, backlog is more in line with last year's third quarter when you exclude the impact of the strong dollar. The fourth quarter is typically Corrpros’s largest of the year and that will be a case again this year. Our Bayou pipe coatings facility in Louisiana was profitable in the third quarter completing a high margin concrete job and making progress on the two sizeable offshore installation pipe coating projects I mentioned last quarter. Total Bayou block backlog was down about 8% on year-over-year basis as modest growth of Louisiana facility did not offset the current backlog burn and the dramatic decline of activity in the Canadian market. We expect the slowdown of activity in the fourth quarter given the current schedule for the pipe coating activities. Nevertheless Bayou Louisiana will make a strong profit contribution to Corrosion Protection in 2015. As we conclude 2015, we expect Corrosion Protection to generate revenues in line with 2014, but at lower margins resulting year-over-year decline in operating income as I indicated last quarter. Let me turn to energy services on Slide 9, third quarter backlog for energy services was 213 million a 2.8% reduction compared to the third quarter 2014 with all the decline being in the upstream business. The forward 12 month backlog continues to reflect the strength for the downstream market. A major factor in the upstream backlog declines are two large existing upstream contracts up for renewal at the end of this year. We expect to extend these contracts based on our long-term successful relationships with these customers. 2014 legislation passed in California requires skilled trade union labor to be used to execute further downstream refining contracts. One of the contracts up for bid is for the first upstream customer to voluntarily make this move to trade unions. To meet this new requirement early this year we acquired Schultz Mechanical a trade union business which we believe is energy services and important competitive advantage in California. The energy services downstream business is the bright spot for us in 2015 and we expect this business to grow revenues and profits for the full year. We successfully executed record billable hours for time and material maintenance services to help the facilities we serves operate safely and at peak efficiencies. We participated in two sizable turnarounds during the third quarter and anticipate others in the fourth quarter. We're also working with two customers on two turnarounds planned for the first quarter 2016. For the full year energy services remains on track to increase revenues over prior year; however as previous stated gross margins will [indiscernible] compare to 2014 because of the lower margin so far this year in the upstream business. As a result, operating income is expected to decline compare 2014. It is too soon to make definitive statements about the outlook for 2016. We will have a clear picture by the fourth quarter calling late February; however, I do want to share what we know at this point as shown on Slide 10. We do see anything today as indicates to market slowdown for infrastructure solutions especially in North America. Infrastructure solution will enter 2016 with these restructuring initiatives effectively complete and rejuvenated Fyfe/Fibrwrap business. Refiners on the West Coast continue to run at high capacity utilizations because of the low price environment and resulting demand for refine products while the recent pickup in turnaround activity in H2 2015 and the forecast for Q1 2016 is encouraging, we're still evaluating the overall 2016 turnaround opportunity; however based on renewing the two upstream contracts I mentioned earlier, we believe there is an opportunity for energy service to achieve modest growth next year. We believe investments in North American midstream oil and gas pipeline market will continue to grow in 2016. Corrpro is well positioned to leverage its scale and expertise in Corrosion [indiscernible] protection of midstream pipeline assets while we expect revenues to remain -- to grow very modestly in 2016. We believe the income will grow at a higher rate due to the renewed focused on productivity and utilization. Overall, we remain optimistic about the Corrpro business and the opportunity to expand the business into a broader based midstream services company focused on maintaining the integrity of our customer’s assets. We received some very good news as Schultz selected our Bayou Louisiana facility to coat and insulate the pipeline associated with their Appomattox Deep-Water oil development project. We are working with Shell to finalize the scope of the contract. This is a very significant win for us given the volatile upstream energy market. We're still working to understand the impact of this multiyear order on 2016 projections. It is clear that the Canadian upstream oil market will be the most challenging for us in 2016 which impacts United Pipeline Systems and Bayou. The outlook in Canada is an area of focus for our strategic assessment. In the upstream US market it is reasonable to assume United Pipeline Systems will continue to face difficult market conditions. We continue to assume the low price environment will remain over the near term. This is new territory for us as our customers wrestle with additional margin pressures and cash flow requirements, while directing the necessary investments to protect, rehabilitate and maintain their infrastructure. We've not lost any of our key customers and in many cases we've strengthened those relationships. Turning to Slide 11, I realize it's difficult to look beyond the current market uncertainties, but this management team is committed to taking longer term view for growth. Let me outline three areas of focus. First there is strong ongoing demand to rehabilitate pipelines in the water, waste water market. We can enhance our growth rate in North America municipal market by developing a set of market leading products for the water pressure pipe rehabilitation market while diligently maintaining our share of the waste water market. Just as important we must take advantage of the great progress this year at Fyfe/Fibrwrap to accelerate future sales growth and continue to improve execution. Second, downstream and upstream facilities absolutely need high quality maintenance service, engineering support and small capital construction capabilities. Energy Services has a market leading position on the West Coast providing exactly these services with industry leading safety programs. We have an opportunity to leverage our customer relationships to expand into higher margin services to improve the operating margins of the business. Third the North America midstream pipeline market requires investment to efficiently and safely transport production from non-conventional regions like the Permian, Marcellus, Eagle Ford and Bakken to market. We believe there will be investments over the next few years to build and maintain the necessary midstream pipeline infrastructure, Corrpro has a great opportunity to assemble an advanced suite of technologies and services to manage the integrity of our customers' midstream pipeline assets. The need for infrastructure rehabilitation, protection, strengthening and maintenance remains strong. It is the longer term need in our key markets which we believe provides a positive future for Aegion. Now let me turn the call over to David for his perspective on the third quarter results. David?

[David Martin:]

Thank you Chuck and good morning. The release yesterday provide a clarity around the results so I intend to just some high points and drivers of performance in the third quarter. Consolidated revenues for the third quarter grew 1.8% to 357 million with growth coming from Corrosion Protection and Energy Services which more than offset a slight decline in the infrastructure solution, the consolidated topline growth included negative impact of 15 million in foreign currency translation and a net decline of 5 million in revenues from the restructured Insituform international markets. Excluding the infrastructure markets revenues grew low single digits in all three segments. Adjusted non-GAAP gross profit was in line with the third quarter of 2014 while the consolidated gross margins contracted by 40 basis points in the quarter compared to last year. Let me add some additional color on the gross margin performance which is summarized on Slide 12. Infrastructure solutions expanding gross margins by 180 basis points to 26.8%, another strong quarterly performance for the segment. Fyfe/Fibrwrap delivered margins in excess for 40% which included the successful completion of the large industrial project that we've been discussing the last few quarters. Insituform expanded gross margins by 220 basis points. The international CFTP business benefited from the restructuring and improved execution and the North American business generated gross margins well ahead of what we achieved last year. Infrastructure Solutions continues to have a solid backlog position which it facilitates efficiencies as well as improve productivity. Project execution was the primary factor for the margin expansion for both Insituform and Fibrwrap on a global basis. Now turning to Corrosion Protection, there was a nice sequential improvement in gross margins from the second quarter as margins were 22.7% versus 20.6% last quarter. Gross margins still lag from the performance last year when our business in Canada enjoyed a very strong year. Gross margin declined a160 basis points from the third quarter of 2014 for three primary reasons. First there was margin contraction for Corrpro as a competitive market factors as well as project mix impacted the margins as well as the deferral of certain higher margin projects during the quarter. Both of these factors put pressure on margins. Second the pull back in the upstream market especially in Canada took its toll on the United Pipeline Systems, our highest traditional margin business in the segment along with Bayou's operations in Canada. On a combined basis revenues for these businesses declined $8 million and gross margins were 420 basis points below the third quarter of 2014 which translated to a $3 million decrease in operating income. Third the gross margin differential between the large CRTS offshore Wasit Project in Saudi Arabia that completed last year and the current large onshore coding project in Chile was a contributor to lower margin performance in the third quarter as well. Finally, energy services gross margins declined by 890 basis points to 13% below our 15% target as upstream clients in the Central California reduced more headcount and overtime hours in the quarter. We saw improved margin performance in the Permian basin as the prepositioning of the operations began to take hold towards the end of the quarter. Our focus in the Permian remains to secure a better balance of cost to reimbursable contracts versus fixed price on some projects to establish the proper foundation for recurring revenues and more predictable earnings. The downstream business generated gross margins to at planned levels and continues to have a great year with record billable hours for maintenance and services. We also worked on two large turnaround projects in the quarter which boosted profitability very nicely. To summarize we're able to navigate much more difficult market conditions reasonably well given the overall balance of the business in the quarter. Now, let's turn to our cash performance as shown on Slide 13, traditionally the third quarter is our strongest revenue quarter which puts more pressure on cash flow in terms of working capital needs. This was a record revenue quarter for Aegion, taking this into consideration we performed very well in the third quarter, our third-quarter cash balance ended in a 168 million, a $52 million increase over the same period last year. Cash flows from operations provided 10 million of cash as compared to 2 million use of cash in the third quarter 2014. The majority of the favorable variance came from increased cash collections in the quarter. On a year-over-year basis DSOs declined by 23 days to 76 days. We continue to have focus on translating receivables in quicker -- cash quicker across the business, while portion of the decline came from prepayments from customers relating to upcoming coating projects, a substantial majority of this drop has come from a focus across the organization around billings and collections processes. We're well on our way to achieve the objective to reduce DSOs on a sustainable basis to 75 days, which obviously benefits the cash flow but also enables us to reduce invested capital and return and improve ROIC. The fourth quarter is traditionally the largest for cash collections and expected strong fourth quarter this year as well. Our uses of cash in the third quarter of 2015 included capital expenditures of just over 9 million compared to CapEx of 11 million last year in the same quarter. Year-to-date we've spent 21 million or 2.1% of revenue. I expect capital spending for the full-year to come in below last year in the range of $30 million. The effective tax rate on GAAP basis was 29.1%, this compares to only 7.8% from last year which was heavily impacted by the restructuring charges in the quarter. Excluding the restructuring and other charges the non-GAAP tax rate was just under 29% this quarter as compared to 25% last year, due to a higher portion of income coming from higher tax jurisdictions most notably in the United States. I anticipate the tax rate for the full year on a non-GAAP basis to be similar to what we achieved this quarter. Non-controlling interest which is below the after-tax income line was 473,000 in the quarter, this primarily reflects income from our controlling interest in the Bayou Wasco insulation coating venture at the Bayou Louisiana facility. As production continued on several projects in the third quarter, I anticipate non-controlling interest will be closer to 1 million in the fourth quarter reflecting increased production on these projects. Now, turning to Slide 14, as I close my remarks, I'm very happy we are able to continue strengthening the balance sheet this quarter and also providing additional financial flexibility through our amended and restated $650 million credit facility, which will now extend into October of 2020. We accomplished two primary objectives with this new facility, first we took advantage of the low -- current low interest rate environment to extend the facility out two more years as well as lock-in rates on 75% of our term loan through our new and expanded fixed interest rate swap arrangement. Based on our current pricing spread our fixed rate on this portion of the term loan will be roughly 3.5%. Second we enhanced our financial flexibility to pursue selected M&A opportunities as well as return cash to stockholders through share repurchases while our leverage ratios remain higher than 2.5 to 1, we have the ability to seek board approval to spend up to 20 million for our share buyback program beginning this quarter. And starting in 2016 we'll have additional annual capability for up to a 40 million for share buybacks compared to the 20 million authorization under the previous credit facility. Additional financial flexibility will be available to us as we grow earnings and de-lever to improve the leverage ratio below the established threshold. I'm very appreciative of the support from our banking partners on this endeavor, as Chuck outlined earlier our objective is to focus on market segments and services that'll allow the company to provide consistent top line and profit growth. The step we took to amend the credit facility gives us an appropriate capital structure to help provide the necessary liquidity and flexibility to drive long-term health for the company. Now, that concludes our prepared remarks, I'll turn the call over to the operator to begin the Q&A session.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Mike Shlisky with Seaport Global Securities Your line is open please go ahead.

[Mike Shlisky:]

I wanted to touch on the infrastructure solution first, would you characterize the segment safely going forward as a double digit margin, operating margin business, maybe not each quarter but on annualized basis, is that the goal and the current thought?

[Chuck Gordon:]

Yes, certainly, we think the business will maintain the current operating margin.

[Mike Shlisky:]

Okay, I was just wanted to make sure the two contracts they were up for renewals in Energy Services, is there any risk at all that those don’t get renewed? Are you aware of competitors out there who trying to snatch those or do you feel really confident of those?

[Chuck Gordon:]

So they're upstream contracts, obviously the markets under a lot of stress and we always have competition for renewals. We feel good about the renewals but they’re certainly not a lock. We were in the process of bidding them and will certainly no more over the next month or so, but we feel good about our chances.

[Mike Shlisky:]

Okay, okay. And back to the Fyfe/Fibrwrap business, I’ll just squeeze in one more question here, is what's in backlog there -- are the margins on that business similar to what you've seen recently in your current results I’m assuming you can keep executing in the way you have been over the last quarter or two here?

[Chuck Gordon:]

That's correct. We have been very pleased with the margins and the way we've executed the business over since the integration with Insituform and we expect current margin profile to hold and certainly that's what our backlog’s based on.

[Operator:]

Thank you. And our next question comes from the line of Eric Stine with Craig-Hallum. Your line is open. Please go ahead.

[Eric Stine:]

Maybe just on the Appomattox product, I believe this is 80 miles of 24-inch pipeline, I mean is there -- maybe it's still early but anyway to give us the size of this and then could you just talk about how one of these projects would typically rollout if you were to get that contract finalized by the end of the year I mean is that something that you could complete in 2016 or that potentially is 2016 and into 2017?

[Chuck Gordon:]

So let me make a couple of comments about the project. The first thing I would like to mention is the project award is the result of several years of very good work by our technical team working closely with Shell and a material supplier. What we've done over the last couple of years is developed a very unique product for that deep-water application and obviously we're excited about the opportunity, it’s very significant. The second thing I would say about the order is that I want to be careful about commenting on the project because it's really a large factory order. This -- we certainly have risk in the startup, it's a new process, it's a going to be a new line, it's a new product for us. We will certainly have some startup challenges that goes with the territory, but it's very much more of a large factory order product order than it is a typical project with the inherent project execution risk that you have and I think that it's really important that we make that distinction. Out of difference to the customer and their request we can't really comment on the overall size of the project, it's very significant for us. It will be a multiyear contract, we're in the process of starting the facility and building the facility, but it will be a multiyear project, won't be executed in one year and we're still trying to understand what the project impact might be in 2016. So as we conclude the negotiations, get the scope and schedule finalized with more clarity we'll certainly comeback with more information.

[Eric Stine:]

Okay, all right thanks for that. Maybe just your commentary and I know it's early on 2016 but talking about the upstream business, just to kind of clarify a little bit and I know that two Brinderson contracts are both getting re-upped are factor, but if you take those out, do you expect kind of status quo that it's a flat year or I mean right now as you’ve said that you think that it takes another leg down, how should we think about that?

[Chuck Gordon:]

The way we're thinking about it is that we had some backlog last year at this time that went into the first half of 2015. The second half of 2015 has been more difficult and I think it really reflects the true market conditions. I would say that what we expect next year is conditions similar to what we're going through right now. I don't know that I expect it to be significantly worse, but it's certainly going to be as challenging as we've seen in H2 of 2015.

[Eric Stine:]

Okay maybe just last one for me just an update on the Fyfe and Fibrwrap in Japan, is that something that -- just any progress there? Is that something that could impact 2016? Thank you.

[Chuck Gordon:]

So we continue to work hard on that product acceptance in Japan, it's certainly been a challenging product introduction for us and as usual in Japan distribution is always a challenge for us. We don't anticipate it having significant impact on the overall Aegion business in 2016.

[Operator:]

Thank you, and our next question comes from the line of David Rose with Wedbush Securities, your line is open please go ahead.

[David Rose:]

Couple of questions, just going back to the Energy Services segment, getting a little bit more clarity about the margin profile for next year. So one is, the contracts that you have currently in backlog or maybe better put that the contracts that you have period, the multiyear contracts. What percentage would you say are under this lower price environment, would you say that 25%, 50% or 75% of those, the contracts under lower price environment?

[Chuck Gordon:]

About 30% of the contracts are upstream contracts, and they're certainly the ones, David, that are under the most pressure.

[David Rose:]

So as we look into next year and these new contract renewals will be on similar pressure, downstream hasn't seen as much pressure, but on a consolidated margin basis as you work through that pipeline of lower margins you effectively put a top on what your margin profile could be for next year, I mean doesn't seem like there's a lot of room to expand margins next year.

[Chuck Gordon:]

I think you're right, we think there is room to expand margins. Remember that during the first seven months of the year we were in a fairly significant loss position in the Permian and we have restructured out there the business is making money now, we're starting to grow our cost reimbursable contracts in the Permian. We're really pleased, it's going to be a slower growth maybe than we anticipated a year ago, but we're very pleased with where we're at and we think the success in the Permian and obviously shedding the losing business that we had out there, along with what we're seeing in the rest of the business we think we can improve operating margins in Energy Services next year.

[David Rose:]

Okay and much more from where we are in the second half of this year?

[Chuck Gordon:]

Quite probably. Certainly we expect the first half to be better and the overall margin to be better for the year. I would say that we'll probably see modest upside to what we're seeing in the second half.

[David Rose:]

Okay, that's helpful and then just two last ones if I may. The industrial project on the slide, what would you say the contribution was in terms of revenues and operating income?

[Chuck Gordon:]

The large industrial pipeline revenue.

[David Martin:]

It was over $10 million and the margin was over 40%.

[David Rose:]

Okay, then lastly if we're working through our interest expense calculation for next year, what are we planning for that cost for the swap?

[David Martin:]

So what's the fixed rate for the swap? Is that what your question is?

[David Rose:]

What's going to be the cost impact in the swap?

[David Martin:]

The swap is just basically, it fixes the rate at -- with our spread about 3.5%. So that in terms of the overall borrowing rate. In terms of increased interest it will be a couple million dollars.

[David Rose:]

Okay, perfect, thank you.

[Chuck Gordon:]

Thanks David.

[Operator:]

Thank you and our next question comes from the line of Craig Bibb with CJS Securities, your line is open, please go ahead.

[Craig Bibb:]

What’s the dollar value of the weather impact at infrastructure [ph] solutions cost?

[Chuck Gordon:]

I'm sorry, will you repeat that, that weather impact?

[Craig Bibb:]

The weather benefits at infrastructure solutions, could we give a ballpark?

[David Martin:]

That was what we were referring to last year's solid weather, in terms of our ability to increase profitability. And we didn't quantify then and it's obviously very difficult to actually ascertain, but it was certainly very healthy for the months of November and December last year. So far so good, we haven't had any major hits this year.

[Chuck Gordon:]

We've had some rain in Texas with Mexican hurricane coming through, but other than that the weather in through early November's been good and obviously we like good weather but for us to forecast based on the kind of weather that we had last year I think would be -- would not be appropriate. So what we did is hedged.

[Craig Bibb:]

It looks like you're guiding to, you said fourth quarter kind of like the second quarter, so it looks like you're guiding to $0.35 and you're guiding to a decline in revenue at infrastructure solutions, I'm just trying to get my hands around that.

[Chuck Gordon:]

So, overall for the year we expect infrastructure solutions to grow revenue modestly and have, obviously had significant income growth. We have hedged back revenue a bit in the fourth quarter with the expectation that we'll have some weather challenges later in the quarter. Though overall as I said earlier we expect Q4 to come in more in line with Q2 than with Q3.

[Craig Bibb:]

So, could we be looking at like a down double digit at infrastructure solutions given the benefit you have from weather last year?

[Chuck Gordon:]

I don't think it will be down that far.

[Craig Bibb:]

Okay. And then other, I’m just also trying to get firms around the opportunity with the Appomattox contract. If I had a whole lot of pipe and I wanted you to coat it and insulate for me what would you charge for that? For one mile, just one mile.

[Chuck Gordon:]

So, what we've done is we're working closely with Shell, we've finished negotiations on the project and to -- and we'll understand the certainly the schedule, the scope and also the economics in a lot more detail as we go forward, but with deference to the customers’ requests, we're not going to share any more information on the project.

[Craig Bibb:]

So I’m not talking about that project, just all of your projects, if I had a mile of pipe that I want you to recoat and insulate, ballpark, just a though?

[David Martin:]

That is certainly not something we can talk about, because there's multitudes of different products and services that we provide, going from country white coating all the way to a standard FBE coating, they vary widely, this is certainly an even much more complicated project because we're adding insulations and multiple layer coatings, so this is very unique and then different than typical -- our typical project any way.

[Chuck Gordon:]

And we have all three of the items David just mentioned included in the project, so it's a very interesting mix of technologies and products that we'll be using on the piping.

[Craig Bibb:]

And then if you just maybe broad strokes, with energy services, I know you're trying to get the gross margin back half in it but it’s really competitive environment, but to get back to 15% it's going to have some of the less profitable contracts rolling off, what else has to happened to get you off there?

[Chuck Gordon:]

I think for us to get to 15% we're going to -- we'll be adding some value added services over the next year or two. The real asset of the business is just the great customer relationships, that team enjoys in all the refineries along the west coast and I think we have a real opportunity to leverage the quality of work that we do and the relationships that we have in bringing higher value services, and really I think we've going to have to enhance the mix with those types of higher value services, to get the operating margins in the downstream business upward, where we would like it to be.

[Craig Bibb:]

And the price pressure within the industry is coming from excess capacity?

[Chuck Gordon:]

The downstream, we have existing ongoing contracts and certainly when those contracts were bid, there was competition, the real competition on an ongoing basis in the industries in the upstream market we do a lot of work in Bakers Field, this year it would be probably -- the upstream business will be about a third of that total business and certainly that business is very competitive given the current market dynamics. We have a lot of constructions companies up there that are competing for less work and we've been very fortunate, we've great relationships with a couple of key customers and we expect to continue those relationships, but it's a challenging environment.

[Operator:]

Thank you. And our next question comes from the line of Spencer Joyce with Hilliard Lyons. Your line is open, please go ahead.

[Spencer Joyce:]

David, first question for you and perhaps a bit of a housekeeping question. Wanted to go back to the credit facility revamp here and make sure I understand the new repurchase parameters correctly, if I understand correctly, you all have an additional 20 million that would be available before year end or is it just a fresh 40 once we turn over into '16?

[David Martin:]

Yes, we do have an additional 20 million available to us this year relative to the start of this year and then which can be ultimately even carryover to 2016 and then we would have fresh 40 annual capability in 2016 as well.

[Spencer Joyce:]

Perfect. Also, I guess a little color around that authorization, I know over the past few years you all have been fairly aggressive in exhausting that -- at that point 20 million during the first couple of quarters of the year. Given how much cash you all have on the balance sheet is that a reasonable assumption for us moving forward? I mean you all clearly have the flexibility to get in their pretty aggressively or do you all expect to maybe spread that out a little more over the year, if you all had that conversation?

[David Martin:]

Certainly, it's something that we talk about and I think it's probably more preferable for us as we move forward to obviously be opportunistic at certain prices for the stock and kind of tier it, if you will, in terms of pricing and how many shares we buy at various levels. And it'll be our more of a preference to be in the market more for a longer period of time rather than being in and out.

[Spencer Joyce:]

Understood, good point. Separately on the backlog, the $20 million United pipeline system award in Chile, that is in the Q3 backlog, is that correct?

[Chuck Gordon:]

That's correct, it was in backlog, in the Q3, I think we signed that contract in early September.

[Spencer Joyce:]

Switching gears, coming back to infrastructure solutions, I know you talked about generally a pretty favorable revenue environment there as we look out to 16 the market looks pretty firm, but on the growth margin side I am assuming given how strong Fyfe was this year on the back of a couple, the industrial contracts we've talked about or the industrial project, is it going to be hard to see additional gross margin expansion there in 16? And then I guess secondarily however could we see flattish margins from 15, I mean could we sustain up here?

[Chuck Gordon:]

So as I look at that business, there has been a combination of things that have enhanced margin this year. Certainly project execution has improved significantly at Fyfe, but it's also improved in Insituform and that's the main impact that we've had on margins. The second part of the margin enhancements come from lower resin prices because of oil prices, they are oil based resins. What I would say going forward is we're going to continue to drive productivity improvements relatively to labor for both Fyfe and Insituform. I don't expect to have this sort of tailwind that we had this year on the resin pricing. I think that will hold itself about flat assuming oil prices stay in the general vicinity of where we're in right now. The other point I would make though is the backlog at Fyfe and the gross margin that we have in backlog continues to be very strong, so we don't expect that, we certainly, we're very pleased with the way the large project came through the income statement this year, but we expect that backlog to execute in similar margin next year and we're at 20% higher backlog this year than we were last year that time.

[Spencer Joyce:]

Okay that's very helpful. Finally just to drill down a little more with Fyfe, it seems like we're shaping up really an exceptional year there and relating to the top line I was wondering if you all could comment or give a little color on the individual drivers. I mean clearly we've had a couple of large projects or maybe one off type awards there but can you talk about some of the revenues synergies or cross-selling that's happened by some of your sales guys there in the segment and then complementary to that perhaps how much more acceptance and adoption of the technology you're seeing maybe across your own markets?

[Chuck Gordon:]

I'd make -- there is a couple of questions there. I think the first one is that what we've seen in the pipe side of the market is that because of our Insituform sales coverage, we have booked three or four large projects or significant projects that were due to the cities having an emergency and so when they have water main with a problem, the cities have to fix them very quickly. Unlike sewer which sometimes that can stretch out awhile. The pressure pipelines have to be repaired and because our sales force is there, they know the customer, we've tapped into that and the result has been three or four very nice projects that we've executed this year. We don't see another large project over the next six or eight months like we've booked with the large utility project, but we see lots of opportunities on the pipe side and the structural solution side. On the structural solutions side, we continue to make pretty good progress. I think that portion of the business is up over 20% year-over-year. There are smaller projects, they’re a little bit harder to find, but we will like the progress we've made on that side of the business and we're certainly excited about it.

[Spencer Joyce:]

Okay.

[Chuck Gordon:]

So just to summarize, I think we've seen good synergy with the Insituform sales guys on the municipal pressure pipe market -- portion of the business and we'll continue to see that as we go forward.

[Spencer Joyce:]

Okay so just to kind of digest on my end, so maybe don't see another utility project right off the bat here, but it sounds like the progress on the pipe -- the emergency pressure pipe side, I mean while large awards and they pop up pretty quickly I mean I got to think those are generally pretty repeatable, I mean you should continue to see that type of work?

[Chuck Gordon:]

Yes, we think so too. I think that's the kind of work is going to be out there and that's the kind of work that has absolutely resolved the synergies of two sales forces.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Will Newby with D. A. Davidson. Your line is open. Please go ahead.

[Will Newby:]

Will Newby here for John Rogers. Just a little bit mark color on the pipe coating, [indiscernible] from what you've seeing bidding prospect wise, maybe if you could compare a little bit to last year?

[Chuck Gordon:]

I am sorry can you repeat that, that didn’t come across.

[Will Newby:]

Yes, if you could just give a little bit more on pipe coating regardless the bidding prospects that you guys are seeing in the market and maybe compare it to last year?

[Chuck Gordon:]

So I would say that on the pipe coating side of the business, we would expect that the business for the -- going into next year will look a lot like the second half of this year and it's been a challenging environment for us. Obviously, the Appomattox project completely offsets all that, but again there until we understand the project schedule and scope in more detail we can't really comment any more than say its very significant. But the overall coating market that we're seeing in Canada and the non-Appomattox portion of the business in New Iberia there's no question it's a challenging market for us.

[Will Newby:]

That's helpful, and one more, just maybe thoughts on turnaround maintenance going into 2016, I know you said it's picking up here in the second half of '15, so that keeps growing into the spring?

[David Martin:]

So we have a few first quarter projects that we'll be doing and then after that it looks kind of like in terms of overall turnarounds for 2016. But things can change, you'll see customer accelerate depending on what's going on in the market, but at this point it does look after the first quarter.

[Will Newby:]

Perfect, thanks. That's all I got.

[Operator:]

Thank you, and I'm showing no further questions at this time and I would like to turn the call back over to Mr. Chuck Gordon for any further or closing remarks.

[Chuck Gordon:]

Thank you, thanks for joining us we appreciate the opportunity and your time to explain the business and what we see going forward, we’re excited about the prospects for the business. We continue to believe the overall strategy is correct and we're very excited about 2016. Thanks for joining us and please give us a call if you have any further questions. Thank you.

[Operator:]

Ladies and gentlemen thank you for your participation in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.