Aegion Corporation
Q4 2012 Earnings Call Transcript

Published: 26 Feb 2013

[Operator:]

Good morning, and welcome to Aegion Corporation's Fourth Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this event is being recorded. 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 the 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 our 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 will now turn the call over to Joe Burgess, President and CEO of Aegion. Sir, you may begin.

[J.Joseph Burgess:]

Thank you, and welcome to our 2012 earnings call. With me today are

[David A. Martin:]

Thank you, Joe, and good morning. You've seen the results in the press release, so I'd like to use my time to provide some perspective on the quarter and the full year. Three important things stand out to me. First, our Energy and Mining, Commercial and Structural and North American Water and Wastewater businesses delivered significant operating income growth and solid margins both in the quarter and for the full year. Second, our cash flow from operations in the quarter was $52 million, pushing our full year operating cash flow to a record $111 million. And then third, our return on invested capital improved in the quarter. And for the full year, it increased by 1.5 percentage points. Now let's look at our segment results, beginning with Energy and Mining, which recorded another strong quarter. Beginning with UPS, revenues in UPS increased 15% to $41 million in the quarter and gross profit rose 1.6% to $9.3 million. The core U.S. and Canadian businesses remained strong as our customers' maintenance programs remain a strong area of focus. Pipe fusion and lining activity continued on the Morocco phosphate pipeline project, another prime driver of the quarter's results. At 22.8%, gross margins for the UPS business were lower year-over-year, reflecting the large size and the lower margins associated with this Morocco project. Moving on to Corrpro, where year-over-year quarterly revenues grew 4.5% to $57.6 million. Gross profit increased to $15.3 million, representing gross profit margin of 26.6%. Demand for our pipe integrity engineering services remained strong in Corrpro's core North American market, accounting for the majority of the revenue and the operating income improvement. The success of our strategy is to guide this business towards our higher-margin engineering services. And better cost management was reflected in Corrpro's operating margins, which increased to 14.3% in the fourth quarter. And that's up from 9.1% a year ago before allocation of corporate expenses. Bayou's performance was mixed as revenues increased 29.5% to $34.7 million. This growth was attributable primarily to coating market in New Iberia and in Canada, where our second coating line came online this winter. While smaller in size, our field coating services business performed very well and was a strong contributor for profitability both in the quarter and more importantly for the full year. Bayou's gross profit in the quarter was $6.7 million, which was down 18.7% from the year-ago period when our operations in New Iberia had 3 high-margin concrete weighting coating projects, which were not present during this quarter. We also had fairly significant losses this quarter from our welding operations, mainly because of cost overruns associated with a large crane fabrication project. As a result, gross margins were 19.4% versus 30.9% a year ago in Bayou. Our coating joint venture with Stupp Bros. in Baton Rouge, Louisiana continued to deliver stellar growth and bottom line performance. That business ended the year with record profits, which was on the strength of significant small- and medium-diameter pipeline project in the Southeast and Southwest regions of the U.S. Total revenues for this venture were 53 point -- $53 million, a 56% increase over 2011. Our equity income in the quarter increased by $1 million to $1.5 million. And for the full year, equity income from this partnership was $5.4 million, a $2.7 million increase or 100% year-over-year. Now on to CRTS, where revenues grew 12.7% in the quarter to $5 million. Gross profit and margins were $1.6 million and 32.5%, respectively, which are below the typical margins, which were really attributable to the delayed Wasit project, which has very high margins. We do not have any other significant projects scheduled in the fourth quarter, mainly because of normal seasonality. In the fourth quarter of last year, we had a number of high-margin projects in South America, which were not present this quarter. Our fourth quarter results included a $3.1 million earnout reversal for CRTS, Fyfe Latin America and Hockway. Entering the quarter, we believed these businesses had a reasonable chance of achieving the 2013 EBITDA target set forth in their respective acquisition agreements. After completing our planning process, as well as assessing the company's current project timing and our short-term prospects, particularly the shift of the portion of the Wasit project into 2014, we determined that they were not likely to deliver their 2013 profit contributions, which were contemplated, which was the last year of their earnout agreements. It was therefore necessary to revise the fair value of their expected outcome, resulting in the reversal. CRTS' reversal amounted to $2.3 million, Hockway's was $460,000 and Fyfe Latin America's was $366,000. Now let's move over to NAR, which delivered another solid quarter of performance. NAR's gross margins were within the expected range, given the traditional November and December slowdown for the business. Gross margins were down sequentially from the third quarter due to this. In addition, our Canadian operations, which perform at stronger gross margins from that of our U.S. operations, experienced severe weather conditions in November and December, impacting our overall gross margins for this business. Our operating income performance improved dramatically, up 36% from last year, despite lower revenues in the quarter, which really comes from our commitment to bidding discipline and project management to fully drive our crew utilization. Third-party tube sales, an important element in our NAR strategy, were up 12.3% to $19.2 million for the full year with fourth quarter sales matching last year's strong results. Our Water and Wastewater results in Europe were mixed as a result of continuing economic uncertainty and adverse weather conditions. While most of the plant's subsequently acquired work was completed in the quarter, delays caused slippage into the first quarter of 2013, most notably in the U.K. market. We continue to have strong performance in the Netherlands, our largest contracting margin -- market. Weather was a significant factor for a slowdown in December in several countries, primarily Switzerland. Third-party tube sales in the quarter were down in Eastern Europe because of a slowdown in activity in some of our larger markets there. However, sales in Western Europe picked up as we expand our tube sales more broadly across the continent. Turning to Asia-Pacific Water and Wastewater. We have received letters of completion for 2 of the 3 legacy projects in Singapore. These projects are now in the final inspection phase for closeout. Work continues on the last 2 lines of the third and final rehabilitation project. In addition, a round of negative change orders resulted in profitable liner installations [ph] being removed from the contract that were expected to offset some of the higher unexpected cost. We're working closely, very closely to close this project down and have assessed the probability of a relatively small increase in cost, which is included in our guidance. Our Australian business improved sequentially as we began to execute on some small projects in Brisbane, unrelated to the 2 recently announced contract awards totaling $8.9 million planned for the first half of 2013. We incurred some cost in the quarter to open up and staff our new Brisbane office to support the market activity we anticipate in the Queensland region. Let's take a look at our Commercial and Structural segment. Fyfe North America delivered another very solid quarter, driven by strong demand for Fibrwrap in the higher-margin pipeline end market. Commercial and Structural gross margins increased to 55.8%. A positive mix towards higher-margin pipeline projects, primarily in North America, resulted in gross margins in the mid-40% range, while certain large material sales and a one-time inventory adjustment bridged to this very, very nice result. We also began to see a more meaningful contribution from Fyfe Asia, although project timing issues pushed some of the expected 2012 activity into 2013. Commercial and Structural operating margins, including amortization and intangibles, reached 22.1% in the fourth quarter. Operating expenses increased to $6.9 million as we continue to invest in the capabilities which are needed to develop our high-growth end markets. It also includes operating expenses of Fyfe Asia and Latin America, which were not included in the fourth quarter 2011 results. Our tax rate for the fourth quarter and for the full year was 29.4% and 25.2%, respectively. On a pro forma basis, excluding the acquisition-related expenses, the CRTS earnout reversal, treated as a nontaxable event, helped to offset certain incremental tax impacts from various jurisdictions and higher rates. I am most pleased with the strong improvement in cash flow from the operations this quarter and for the full year. Our operating teams did an outstanding job with collections in the fourth quarter, which contributed to the operating cash flow of $52 million. That strong finish to 2012 pushed us to a record $111 million in operating cash flow attributable to factors that reflect our growth strategy

[J.Joseph Burgess:]

Thanks, David. Looking back on Aegion's 2012 accomplishments, I believe we ended the year with momentum in the key areas that mean the most to our future. Obviously and first, backlog at the start of the year is one indicator for the outlook we expect. We begin 2013 with our highest backlog in history. Second, robust energy markets and international expansion opportunities support the technologies and services we offer to protect vital pipeline assets. In that vein, Energy and Mining, led by Corrpro and UPS, will again play the primary role as the driver of Aegion's growth in 2013, building on the strength of our core North American market and significant progress associated with our efforts in the Middle East and other markets. Third, the commercial rehabilitation market continues to grow rapidly in many parts of the world. While the North American market will see strong growth, we expect explosive growth in Asia and our initial project awards in Latin America, accelerating the growth we expect in 2013 for this platform. Lastly, the North American municipal wastewater market looks stable to us, with pockets of growth that we expect to result in top line growth for NAR in 2013. We are pleased with the progress NAR made in 2012, particularly in expanding margins. I expect further improvement in 2013. For the international CIPP businesses, we must hold these business units to the same standards as we do the businesses in our primary markets

[Operator:]

[Operator Instructions] The first question is from Eric Stine of Craig-Hallum.

[Eric Stine:]

I was wondering just if we could start with Asia-Pacific, just given how that played out in 2012. These 2 projects, it sounds like you're in final stages. I mean, what's your confidence that those don't drag on and impact the business more here in 2013? And then curious about the third project as well.

[J.Joseph Burgess:]

Well, the first 2, of course, David mentioned, we have certificates of completion, so those are done. The third one has a little bit more work that we think will be completed, I guess, by April at the latest and we have included some cost in the guidance discussion that we issued earlier.

[Eric Stine:]

Got it. So the first 2 though, there's no -- I mean, those are done. There is no potential that those linger any more.

[J.Joseph Burgess:]

That's correct.

[Eric Stine:]

Okay, good. Maybe just turning to India, given the history in that country as well, I'm just curious if you could provide a little more clarity into how you're going to approach that market and how you safeguard, just protect it against what has happened in the past as well.

[J.Joseph Burgess:]

Okay. I don't want to take up all of our time, but I think it is important. To answer that question, I have to give you a little bit -- I have to remind ourselves of the history. The bulk of the work that was awarded in India was awarded way back in 2007, and it was awarded under open bidding tenders that were really not specifically related, that were not related to CIPP. So we took those tenders really as a market penetration strategy. And you will recall as we got into more specific negotiations with that client, lost a few battles over tube thickness, which drove greatly increased resin pricing. And suffice to say, there were also not adequate protections on delays related to the client and how those would impact our own kind of fixed cost schedule. Our operating capability in India in my view and the view of our operating experts within the country and within our global system was actually pretty good. So we have a fair amount of confidence that we can execute there. But we certainly have to do a much better job, and that's been a focus of our efforts as we develop new contract opportunities to make them very CIPP-specific and to have a lot of both the operating and commercial protections that are very standard for us in other parts of the world. So I would say that's the main difference. As I alluded to in my remarks, I would say the second difference would be the very, very and much more rigorous attachment of any new bidding that we do really across anywhere in Asia-Pacific to what we believe is company strength, which is our estimating and project management capability. And so we certainly have put together an expert team that sits on that to make sure that we have the proper protections in place and have priced and costed those jobs correctly within what we now understand to be the actual timetable of implementation in India. And then of course, as I've said before, we really have a 1 project approach to that business. So if we're awarded a project for $10 million in the near term, 3- to 6-month work is $2 million, we're going to approach that as a $2 million project and go execute it and be finished. So I think those are the key differences there. But as I said in my remarks, each one of those has to be evaluated really before you launch. And at the end of the day I would say we have a double-headed approach there to where we are certainly looking at installation if we think we can do the work and be profitable, but we also have a backup plan to just provide technical service in tube. And so if we don't feel like we have -- we're pristine on commercial terms and have a proper understanding of the operating risk, then you'll see us default to plan B.

[Eric Stine:]

Okay, got it. And maybe just turning to Energy and Mining. This is kind of a high-level question, but you've been talking about your goal to get the recurring mix to kind of the 65% to 70% range. I think today it's probably 40% to 45%. Just wondering where you feel like you stand in that process. And is that going to be organic, by acquisition or a combination of both?

[J.Joseph Burgess:]

Well, I think in 2013, we predicted a low- to mid-teens growth for Corrpro, which would push us close to -- or maybe just slightly north of 50% of our revenues as being recurring out of the segment. I'd have to do the math on UPS' backlog mix for '13 because the mix of that is, some of the UPS backlog relates to new pipeline. So certainly, on the organic side, we can make -- we think we can make significant annual strides on that. But as we've said in some previous conversations, we also see some product and service augmentation that can be done in Corrpro's pipeline inspection and pipeline integrity business, which we would also view as recurring. And we remain active in the marketplace looking to do that.

[Eric Stine:]

Got it, okay. Just one more for me, just in Bayou, just curious. Your location there in New Iberia, do you feel like that gives you a leg up as far as coating potential for Sabine Pass and some of the other potential LNG export projects going forward?

[J.Joseph Burgess:]

It certainly should.

[Operator:]

The next question is from Arnold Ursaner of CJS Securities.

[Arnold Ursaner:]

My first question relates to the margin you had this quarter in Fyfe. Was there any one-time or unusual item that got you to the mid-50s margin?

[David A. Martin:]

Yes, this is David. I did mention in my remarks a little bit of an inventory adjustment this quarter. It wasn't the primary factor, but it certainly did contribute to that. It was a mid-40s margin from the regular part of the business. We had some higher-margin material sales that helped impact it, as well as this inventory adjustment.

[Arnold Ursaner:]

Okay. And following on Fyfe, your growth rate, if I've done my math right, in Q4, the organic growth was sort of low double-digit, slower than you've been having. And you did mention, Joe, in your prepared remarks, you think you'll have 30% growth in '13. Was there a factor that caused some slowdown in the growth trends in Q4? And maybe talk about why you're so encouraged about the upcoming year.

[J.Joseph Burgess:]

Well, Fyfe is, I think you'll see as we get some additional experience with it, that it does have some seasonality in it. Certainly, the pipeline business is an external contracting business much like our North American business. So you do see some slowdowns really once you get within a week of Thanksgiving as the weather turns and people get on vacation. The Fyfe business is also relatively new, so I think we're also gaining some experience in managing a stronger production orientation culture within that business as opposed to the way they viewed production under private ownership. But I think I'll just go back to we did see backlog growth. Much of the large number backlog growth was due to adding, of course, the backlog in Asia. But the U.S. backlog is -- the North American backlog, I should say, is strong and the bid table is robust, so we feel very good about the growth prospects. And of course, that bid table remains robust from a gross margin profile. So we expect with that level of growth that the operating margin for that business as we get through 2013 and '14 will start to be very impressive.

[Arnold Ursaner:]

Okay. My final question, if I adjust out the adjustments you've made for performance incentives that were -- performance measurements that weren't met, which were about $0.20 in 2012. If I take a base number of $1.20 or so and I look at your guidance of $1.60 to $1.80, you're implying 33% to 50% earnings growth. And I know you probably have covered all of the factors in your prepared remarks, which were very extensive. But maybe take a step back and highlight the 2 or 3 or 4 factors that you believe will be the key drivers of that substantial growth.

[J.Joseph Burgess:]

Sure. Well, I guess, the first -- you're right, the earnout reversal is $0.20. And then we also think as you go from '12 to '13, you have another $0.04, $0.05 just in the impacts downward of incremental revenue and profitability out of the Morocco situation. But I think you add to that getting our Asia-Pacific wastewater business to breakeven, which is essentially $0.20 a share in itself, in and of itself. The Wasit project, we think, conservatively in 2013 will contribute $0.10. C&S, the 30% growth there, which will be somewhat offset in '13 by OpEx investments that we're making. I made a remark earlier that the pipeline business in C&S has a level of maturity in the sales and engineering functions that we need to enhance, certainly on the building strengthening side of that business. So there will be some investments there. But net of those together, I think we'll see an additional contribution of $0.07 to $0.08 out of the C&S platform. North American wastewater business should -- we think will do better both with some modest increases in revenue, which I described in my remarks, and we think we'll see some continued margin expansion. So we put that at between 5% to 7%, depending on how the market turns out. And then of course, as I described, while UPS revenues will go down, we believe their margins will go up. And we expect a very, very strong year out of Corrpro. So certainly, we expect the E&M platform to contribute between 15% and 20%. $0.15 to $0.20 on the upside next year based on 2012 remarks. So that would be a quick bridge.

[Operator:]

The next question is from Liam Burke of Janney Capital Markets.

[Liam D. Burke:]

Joe, if we could talk about Europe for a moment. Backlog is down a little sequentially, up year-over-year. I guess, stable is a popular term. But can you give us a sense by region or by country where you see softness and where you see strength or lack of weakness, I guess?

[J.Joseph Burgess:]

Yes. Lack of weakness would probably be a better term. And we see that really in the Netherlands and the U.K. The U.K. was a bit of a frustration for us this year because we've kind of continued to have investments that we've seen pretty consistently as they cycle through their 5-year regulatory cycle that were consistently deferred, although some of that work have started to show up at end of the year and we think we'll get it into it in the spring. Netherlands has been pretty consistent. France, inconsistent, and that's been a difficult contracting environment for us in the past. So we certainly have a lot of scrutiny on that. Tube sales situation has been, I would say, robust from an activity level. But we've been not as consistent as we would like in being able to translate those into actual booked orders. So we're seeing good progress in that business, particularly as we've made inroads into Russia and into Eastern Europe. But our activity level translation rate into actual orders slowed in the back half of the year over frankly what we would have predicted based on the momentum we saw in the first half. So when we put all of that stuff together, we think we'll do better in the U.K. We think we'll do modestly better in the Netherlands. We do expect some uptick on the tube side. So modestly better in Europe for '13 but not really based on any overarching improvement in the state of affairs on the continent, just that we think we'll squeeze some improvement on the tube sales, and then probably do better in the -- a little bit better in our primary contracting markets in the U.K. and Netherlands.

[Liam D. Burke:]

Great. David, you mentioned investments in 2013. How would that relate to CapEx? And how would it increase you above your normal maintenance level?

[David A. Martin:]

Well, if you look at our 2012 CapEx, it was about $47 million prior to any partner contributions, which is shown in financing. I expect that our CapEx this year will be down because certainly those 2 projects are coming to a close that were the primary drivers of the increase. So I expect overall capital expenditures to be between $35 million and $40 million this year. And that's about $7 million or $8 million higher than what our depreciation is. And that's still continued areas of investment in the Energy and Mining platform for growth and a little bit in Fyfe as well to develop their operating capability.

[Operator:]

[Operator Instructions] The next question is from Noelle Dilts of Stifel.

[Noelle C. Dilts:]

I wanted just to dig into Bayou a little bit more. First, could you describe or maybe quantify how big this loss was on this welding project? It just doesn't seem like a real core piece of the Bayou business, so I'd just like to understand it a little bit better.

[David A. Martin:]

Yes. Noelle, this is David. During the 2013 welding operation, you're right, it is a small part of our business. We had some losses as we had a fabrication project for a crane. It didn't go very well at all and it cost us about $1 million.

[Noelle C. Dilts:]

Okay. And then looking at the progress on the new insulation facility that you're looking at bringing online, I think previously you've expressed some maybe hope or optimism that you might able to start producing at that facility in mid-'13. Now it sounds like that's pushed out a bit to '14 or late '13. Can you just talk about what's driving that pushout?

[J.Joseph Burgess:]

It's taken us a little bit longer to get certified with the offshore clients than we anticipated. The actual construction schedule facility was, I would say, within 6 weeks of the schedule. But then the process, of course, is we have to do internal testing, which means coat a fair amount of pipe and then cut it and analyze it internally, then we have to send it out to external labs that are used jointly by both ourselves and our customers, satisfy ourselves that we're ready, and then send it, do some independent test, which are essentially managed by the large integrated players in the Gulf. And we're in that process now. I would say another issue that's contributing to it is we felt going into it that we would be able to -- there's multiple projects in this insulation process, and we're essentially having to test them in sequence rather than at the same time. So it's just taken us a few more months, and we originally felt like we would be up and ready and capable by April or May. And now it looks to us like a June or July situation. And then we have to book some orders. With what we know about lead times in Bayou, that's a formula for an event in '14.

[Noelle C. Dilts:]

Okay. And then if you had to say at Bayou, what's built into your expectation in terms of how much offshore work you think you'll do in 2013 versus 2012?

[J.Joseph Burgess:]

Almost all of the work is 2013 -- I mean, excuse me, offshore-related. I'm not aware. Now where most of the onshore work that we're doing is actually funneling through the BTR operation, which we see in our equity earnings, and as David described in his remarks, has had a great year. But it's just worked out logistically and from a capacity utilization standpoint that a lot of that work has run through the other coating operation.

[Noelle C. Dilts:]

Okay. And then just shifting gears to NAR, could you just comment on if you're beginning to see a shift back toward larger-diameter work in the market or if you're still seeing a lot of smaller-diameter work?

[J.Joseph Burgess:]

I would have to say that even if I thought that was happening, you would not get me to admit it just because it's been an issue in the past. We do see really on the -- but really on the basis of some larger awards that have had a higher mix of medium-diameter and some large-diameter work a better mix overall for the company and for that division, and that's a good thing. But there's nothing -- and I think I've said this before, everything that you end up concluding about the wastewater market in North America is really just additive of each of the individual projects that go out. So if you have some large projects that have some medium diameter and large diameter and you win them, it alters your mix. But there's nothing that, that says specifically about the market changing back towards medium or large diameter. It's just really about what the community has decided to do, where they are in terms of administering their consent decrees. It's not a market dynamic. It's just based on the projects that are out in the marketplace and what we've been able to win. The good news for us in '13 is we've won some large-scale work that has a better mix.

[Operator:]

Our next question is from Gerry Sweeney of Boenning.

[Gerard J. Sweeney:]

Doing some work on the Middle East on some ancillary companies or ancillary areas, starting to see what appears to be more interest in some offshore drilling, some more capital spend in the oil and gas space. I'm curious to see if you're seeing any of that and what the impact would have for you guys in terms of maybe getting additional work of rolling into, some of the products into that region.

[J.Joseph Burgess:]

Well, as I think my remarks indicated, we're overall pretty bullish about the Middle East. I mean, we really did not have any activity in that region prior 2009 other than maybe the occasional parachute in and work for a bit, and then parachute out. So having made an investment to open an office across the E&M platform, I think we ended the year with approaching $70 million in backlog, primarily associated with obviously the Wasit project. The remaining portions of the Wasit project will be counted but also nice backlog positions for both Corrpro, largely based in Kuwait, and UPS, as I described, based across, and this is pretty exciting, 4 or 5 different countries. And when you work in a country really, that means that you've kind of finally passed muster with whatever the national oil company is there and that gives you an opportunity to drive your services and technologies as a matter of specification for future work in those markets. So pretty bullish on it. And we see continued spend, certainly in Kuwait and in the Kingdom, and then in some of the lesser markets related to Bahrain and the Emirates. I think we mentioned we have some first work in Algeria. And of course, we have not been able to kind of expand on our Moroccan efforts, but that certainly gives us a foothold in that market for both mining and hopefully we can take it to natural gas. So we think this is going to be a very sizable market for us. We've done well as an execution matter as well.

[Gerard J. Sweeney:]

Yes. I mean, but when you take a look at it, I mean, what you described, was that more of you creating a presence in the market and -- which will drive both in itself. But what are you seeing in terms of the opportunities that expanding? Is there more spend there that could go in conjunction with that presence in the market?

[J.Joseph Burgess:]

Well, I think spend is expanding to us certainly in Kuwait and Saudi. I would say we would expect it to be relatively flat in the Emirates. And we certainly picked up a nice project activity in Oman, which is a smaller market. And then I would say we're early days, we have project activity in North Africa, which we run out of that particular geography. But we certainly see spend expanding there as well.

[Gerard J. Sweeney:]

Then one question on the Morocco UPS project. That's a JV, so technically where you have the majority, I think you're going to have a larger hit on the revenue side, but then basically half as much hit on, I guess, the equity because you're only going to be spending half the earnings anyhow. Is that correct?

[J.Joseph Burgess:]

That's correct.

[Operator:]

The next question is from David Rose of Wedbush.

[David L. Rose:]

I have a couple of quick questions hopefully. First is looking at NAR and the backlog that you have, you hadn't been this high since 2010, at which point you had roughly a dozen more crew. So maybe you can help us understand how you manage the business. You're much more efficient now, so I think that's appreciated. But maybe you can walk us through your thinking in terms of how you manage that backlog and how it works through the rest of the year because the implication is that your revenues are going to be up in the single-digit range for NAR, and that's despite an enormous increase in backlog. So maybe you could help us reconcile those 2 things. One is the crews, how you manage. Secondly is how we think about backlog progressing throughout the year.

[J.Joseph Burgess:]

Well, in terms of the crews, I would say adding a crew in our North American business is one of the highest bars we have because the company has not had much success in managing with much agility through the fixed cost implications of going through any significant level of crews. So what we're tending to do is instead looking to move crews around, whether that's temporary or permanent, I think you've seen a lot more of that, kind of underneath the surface of our performance in NAR, rather than being very, very quick to add crews. And David, you and I had this conversation. I think we probably missed this a bit during the stimulus period, where we felt like investment in the wastewater pipeline works would stick and we had some crews that ended up being stranded. So that's the first thing. So you might see us as we look at where our backlog is geographically, we're looking very, very hard to make sure that we have that placed right. If that means downing a crew in the Southwest in favor of 2 more crews in Baltimore, then that's what we're doing. If I looked at an 8% to 9% revenue growth in big picture, I would doubt that we could achieve that with our current 55 crew configuration, so you might be looking at plus 1 or plus 2 as we go through the year. Is that what you're interested in?

[David L. Rose:]

Yes. And I'm assuming some of this backlog, I think you comment some of this backlog goes into 2014, in the case of Baltimore, Maryland. So when we look at the conversion rates, that's going to change a little bit versus historical level. So how do we think about the backlog or the revenues progressing throughout the year?

[J.Joseph Burgess:]

We see a pretty good bid table in NAR. So again, it would be a function of kind of what work we want. I mean, hopefully you're gaining an appreciation that we're a little more selective about the work that we want as opposed to the last few years. So if we saw good margin work that would support maintenance of that backlog level, that's what we do. If we didn't, as we go through the year, we take some other steps. But generally though, I would not expect significant growth in the backlog position of the North American business just as we go through the year. So I would predict the normal, probably down a bit in the first quarter because that's a slow -- that certainly is slow bid time, and then you start to recapture that in the second and the third quarter as you get in both the heavy activity of the bid season, as well as the construction season. And then that tends to moderate in the fourth quarter. But I would say it would be mostly around this level.

[David L. Rose:]

Okay. That's helpful. And then on Asia, real quickly. In the third quarter conference call, you indicated that you expected the losses in Asia to be modest. They were more significant than you anticipated. Can you provide us a little bit more comfort in terms of better understanding risk management? What might be the issues that you see with the Wasit project and then with execution in Hong Kong as we start to think about executing internationally and your visibility internationally?

[J.Joseph Burgess:]

Okay. Well, as David mentioned, 2 of the 3 projects in Singapore, just taking that first, are closed out. So they're essentially done. We accepted a certificate of completion, which basically means you're done, neither party can go back at the other. So we give up any potential for claims that we might have just to kind of be done with it. The third one, we're finishing out. We did a little worse in the fourth quarter because we actually had some lines that we felt we could make some money on, but those have kind of been negotiated out as we finish. And as David said, we think we have a little bit additional exposure, but that's reflected in our guidance numbers for '13. I mean, if you go to the other markets, you asked about Wasit specifically. I can just tell you that other than the timing, where we get kind of paid a standby rate while we're doing some onshore work, we really can't do what we do until we get on the barge. We think we're pretty confident we have this priced right. I would just ask you to recall that the Wasit project, and this is prior to our ownership with CRTS, of course, had a predecessor project on a smaller scale that used the exact same technology and actually achieved a higher margin profile. So we think we're pretty conservative based on the production rates that we have priced. And so of course, you think about this in terms of how quickly can you do what we do, which is inspect and then weld -- I mean, excuse me, inspect the weld and then coat, and then get it off the back of the barge. And we think that the margins, the way we have it priced in the margin profile is fair based on the productivity rates that we've already achieved on the predecessor project. And our view is we're better now than we were then. So we expect that project to be very successful.

[David L. Rose:]

And Fyfe Hong Kong?

[J.Joseph Burgess:]

Well, Fyfe Hong Kong is -- we have 2 issues in Hong Kong. We have our wastewater operation, which is kind of a break-even operation, and then you have Fyfe Hong Kong, which has been highly profitable under the private ownership. And now as they are targeting and bidding larger work, we expect them to be even more so as they achieve scale. But I'm not aware in due diligence or certainly in our 8- or 9-month association of any operating hiccups at all. I'm staring at Brian Clarke, who runs the business.

[Brian J. Clarke:]

None at all.

[J.Joseph Burgess:]

So we expect those to be highly profitable projects.

[Operator:]

I would now like to turn the call back to Mr. Joe Burgess for any further remarks.

[J.Joseph Burgess:]

Okay. Well, thank you very much. I'll just reiterate what I said. I mean, this was an exciting year for us, not without some turbulence, as we've discussed some issues. But an exciting year as, in my view, represents our first full year with basically the company that we sought out in early 2009 to put together, which we think operate, offers really a one-stop shop as people focus primarily on their pipeline issues for corrosion and abrasion prevention and rehabilitation. But as I mentioned, we also have some exciting technologies that we think can take us to other areas as well. So we feel like we're positioned for a very strong 2013 and certainly appreciate your continued interest in Aegion. And we'll be talking to you soon. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today's program. This does conclude the event, and you may all disconnect. Everyone have a good day.